Realogy Looks Like the Real Deal

TheStreet.com

NEW YORK (TheStreet) -- It's hard to believe that we're in the sixth year from the top of the last housing bubble and the resulting crash in housing prices. The going has been tough on the real estate business overall.

Now, thanks mainly to the Federal Reserve's Zero Interest Rate Program (ZIRP) and the most massive version of quantitative easing yet, the housing market has leapt from its grave like a super-charged, re-energized mummy on steroids.

What's timely here is that we're just coming out of the housing trough or the grave, and after running around the cemetery to stretch its new-found muscles, the real estate mummy has shed its wrap and is beginning to rise on the wings of monetary stimulation.

This is good news for one newly resurrected entity called Realogy Holdings , a global leader in real estate franchising with company-owned real estate brokerage operations doing business under its franchise systems as well as relocation and title services.


Realogy's brands and business units include such names as Better Homes and Gardens Real Estate, Century 21 Coldwell Banker, Coldwell Banker Commercial, The Corcoran Group, ERA, Sotheby's International Realty, NRT LLC, Cartus and Title Resource Group.

Collectively, Realogy's franchise system members operate approximately 13,600 offices with 238,900 independent sales associates doing business in 102 countries around the world. Realogy is headquartered in Madison, N.J.

From my vantage point, their brightest star is NRT, with operations in more than 35 major metropolitan markets. The latest list of highlights about NRT includes the following:

  • The largest operator of residential real estate brokerages in the U.S.
  • More than 710 company-owned offices with approximately 41,300 independent sales associates
  • Posted approximately $108.9 billion (pro forma) in total residential real estate volume in 2011
  • Completed approximately 370 acquisitions since 1997
  • All of NRT's local companies are ranked among the top three in their respective markets

Realogy will present its first-quarter 2013 earnings report and conference call on Wednesday after the markets close. The company chose to go public when it saw an established recovery in the housing markets. On Oct. 11, 2012, the stock began trading publicly and was up 26.7% the first day, to close at $34.20. It was the right time for such an offering, and the markets agreed.

You can see from the six-month chart below, since late November 2012 the shares of RGLY moved sequentially up to over $50 a share before pulling back of late.

RLGY Chart
RLGY data by YCharts

The stock has come a long way in a short period of time.

According to Jim Cramer, "This is a classic case of a deleverage situation. They do issue stock, they pay down debt, the earnings per share go up. That's kind of what Ben Bernanke wanted when he decided to lower rates ... you can refinance everything.

"The important thing is that Mr. Smith, who's the CEO, said there's a housing shortage. It's not a developing housing shortage, there's just a housing shortage and that's how prices are going up 20-30%."


Analysts are expecting a loss of around 43 cents per share. Revenue is estimated to come in at over $964 million. Going into the second quarter and the rest of 2013, analysts forecast positive earnings and big moves higher in revenue.

The case for investing in Realogy is based on a belief in the housing market's recovery and future growth. Recent year-over-year increases in existing-home prices and the prospects for a steady increase in houses sold bode well for this year and for next.

The analyst community has a consensus estimate sales growth and revenue forecast for all of 2013 that tops the $5.1 billion figure.

Here's one last note for investors. John Paulson, through his company, Paulson & Co., held 11% of the convertible bonds in Realogy. Those were were converted into equity, so Paulson's fund has had a handsome return.

The hedge fund's shares are locked up until June, after which the firm has said in a letter to investors that it will exit its huge position "over time." Paulson's stake is much smaller than that owned by Apollo Management Holdings, a part of Apollo Global Management , one of the world's largest alternative asset managers.

Apollo Management owns 17% of the outstanding shares of Realogy. Apollo Global reports earnings May 6, and it will be interesting to hear if it announces any plans to unload or spin out its massive holdings.

At the time of publication, the author had no position in stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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