The stock of real estate brokerage firm RE/MAX Holdings Inc (NYSE:RMAX), short for Real Estate Maximums, was downgraded to underweight on Nov. 6 by Morgan Stanley (NYSE:MS).
The investment bank identified the NAR ruling as a key risk.
"NAR ruling increases risk of further litigation and costly settlements," said the note. Housing strategists at Morgan Stanley expect 2024 to present a challenging backdrop to the company. Accordingly, the firm re-adjusted its EBITDA and EPS expectations, leading to a $10.50 drop in their price target.
The RMAX Analyst: Morgan Stanley analyst Ronald Kamdem, CFA had a revised price target of $9 with an Underweight rating. The firm used a 6.5x multiple, representing a 6% discount to CRE brokers (at 6.9x) and a 34% discount to RMAX 5-year historical average.
The stock was earlier rated Equal-weight with a price target of $19.50.
The RMAX Takeaways: Morgan Stanley analysts laid out five risks that could weigh down the stock's multiple:
- The risk of additional litigation and costly settlement
- Earnings risk , given RMAX's direct exposure to broker fees
- Limited ability to return capital to shareholders
- 8% mortgage rate remains an ongoing headwind
- Management transition at a time of ongoing litigation exposes the firm to execution risk
RMAX Price Action: RMAX was trading down 10.19% at $9.70 at publication Tuesday.