Shares of CBRE Group CBRE put up a solid performance last year, with the stock up 61.8% compared with its industry 45.5% growth. The stock also hit a new 52-week high of $61.54 on Dec 31.
The company has been a steady performer, with an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the trailing four quarters. Healthy leasing and outsourcing business, strategic buyouts, investments in people and solid balance sheet have contributed to its superior performance.
The fundamentals appear solid for this Zacks Rank #2 (Buy) stock, which has a VGM Score of B. Moreover, there is enough scope for the stock’s price appreciation in the near term. Let’s now delve deeper into its strengths.
Reasons to Buy CBRE
Robust Scale: As the largest commercial real estate services and investment firm (based on 2018 revenues), the company enjoys a robust scale. It is among a few companies offering a full suite of services to multi-national clients. Moreover, the company has grown organically and banked on strategic in-fill acquisitions to boost its service offerings and geographic reach. With an expanded capability to service, the company’s number of large clients has increased significantly over the past years. Its market-leading position and strategic reinvestments in business, specifically on the digital and technology front, will likely provide it a competitive edge in banking on commercial real estate industry tailwinds.
Diversified and Contractual Revenue Base: CBRE Group has made concerted efforts to diversify its revenue base over the past few years. The company has opted for a better-balanced and more resilient business model, and shifted the revenue mix toward more contractual sources and leasing, in pursuit of the same. Contractual revenues and leasing, largely recurring over time, constituted 75% of total fee revenues in third-quarter 2019 compared with the 61% recorded in 2006. This makes the company resilient to market disruptions and positions it well to achieve both top- and bottom-line growth amid capital-market headwinds.
Occupiers Outsourcing Business: The company’s Global Workplace Solutions segment, which provides a broad suite of integrated, contractually-based services to occupiers of real estate, including facilities management, project management, transaction management and management consulting, is well poised for growth. Occupiers of real estate are increasingly opting for outsourcing and depending on the expertise of third-party real estate specialists to achieve improvement in execution and efficiency. As a result, CBRE Group is expected to witness continued momentum from both new and existing customers.
Balance Sheet Strength and High ROE: The company enjoys liquidity of around $3.2 billion as of Sep 30, 2019, and has a low leverage level. Adequate liquidity and cash flow offer a solid platform for the company’s growth. Balance sheet is robust, with net leverage of about 0.65 terms of adjusted EBITDA at the end of the third quarter. The company’s solid business momentum, credit profile and growth in recurring revenues are likely to ensure a steady cash flow in the upcoming period. Notably, its current cash-flow growth of 20.09% compares favorably with the 12.09% increase estimated for the industry. Furthermore, CBRE Group’s return on equity is 23.24% compared with the industry average of around 4.17%. This shows that the company reinvests more efficiently than the industry.
Estimate revisions: The upward trend in earnings estimate revisions for the current year indicates a favorable outlook for the company. In fact, the Zacks Consensus Estimate for 2020 earnings per share has been revised 1.2% upward in two months’ time. Given its progress on fundamentals and positive estimate revisions, the stock is likely to keep performing well in the quarters ahead.
Other Key Picks
Jones Lang LaSalle Incorporated JLL currently sports a Zacks Rank of 1 (Strong Buy). The Zacks Consensus Estimate for its ongoing-year earnings has been revised 4.4% upward to $13.67 in two months’ time. The stock has rallied 42.8% in the past year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Newmark Group, Inc. NMRK currently carries a Zacks Rank of 2. The consensus estimate for its 2020 earnings moved 1.7% upward to $1.79 over the past 90 days. The company’s shares have gained 63.5% over the past year.
RE/MAX Holdings, Inc. RMAX earnings estimates for the current year moved 1.4% north to $2.25 over the past 30 days. Shares of this Zacks #2 Ranked company have gained 23.2% in a year’s time.
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