It has been about a month since the last earnings report for CBRE Group (CBRE). Shares have added about 32.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is CBRE due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
CBRE Group Beats on Q1 Earnings, Suspends Guidance
CBRE Group reported first-quarter 2020 adjusted earnings per share of 75 cents, beating the Zacks Consensus Estimate of 70 cents. However, the figure decreased 4.9% year over year.
The company generated revenues of $5.89 billion, outpacing the Zacks Consensus Estimate of $5.49 billion. The revenue figure also compares favorably with the year-ago quarter’s $5.14 billion. Moreover, fee revenues were up 10.9% (11.6% in local currency), year on year, to $2.69 billion. However, adjusted EBITDA decreased 4.4% (4.1% local currency) to $430 million.
Results reflect solid performance in the Advisory Services segment, mainly property sales in continental Europe and Japan. However, in the Real Estate Investments segment, a $27-million decline in its co-investments in the public real estate securities portfolio played spoilsport.
Nevertheless, the company has withdrawn its full-year guidance issued on Feb 27, in light of the coronavirus pandemic and resultant uncertain operating environment.
Quarter in Detail
The company’s Advisory Services segment registered year-over-year revenue growth of 5.3% (6.1% local currency) to $1.9 billion. Fee revenues increased 4.5% (5.2% local currency) to $1.7 billion.
The upswing was driven by global property sales, which jumped 12% (same in local currency), indicating solid capital flows to commercial real estate in the initial weeks of the quarter.
Commercial mortgage origination revenues were up 2% (same local currency). Global capital market revenues, which comprise property sales and commercial mortgage origination, were up 9% (10% local currency).
Advisory leasing revenues fell 2% (same local currency) and reflect the impact of the pandemic in late March. Valuation revenues were up 7% (8% local currency). In addition, property management and advisory project management revenues and fee revenues climbed 9% (10% local currency) and 7% (9% local currency), respectively.
Furthermore, Global Workplace Solutions segment registered an increase of 18.3% (19% local currency) in revenues to $3.75 billion. Fee revenues climbed 16.7% (17.3% local currency) to $808 million. Quarterly results reflect solid increases in global facilities management and project management and revenue growth was especially strong in Continental Europe, the U.K. and the United States.
The new business pipeline remained robust with healthy demand from the media and technology and transportation/logistics sectors, while the company had its biggest quarter ever for renewing expiring contracts, with a renewal rate above 90%.
The Real Estate Investments segment recorded 56.4% (57.1% local currency) growth in revenues to $211 million. However, adjusted EBITDA plummeted 55.6% (55.5% local currency). This reflects a $27-million decline in co-investments in the investment management business’ public securities portfolio, amid flaring up equity market volatility. Further, there were fewer development asset sales than in last year’s strong first quarter. There were also some late-quarter deal delays due to the early impact of the coronavirus.
At first-quarter end, assets under management (AUM) aggregated $108.1 billion, reflecting a decline of $4.8 billion ($2.6 billion in local currency), from year-end 2019. This is mainly due to valuation declines and net outflows in the public securities portfolio, along with negative foreign-currency movement.
In-process development portfolio increased to $13.9 billion, up $900 million from year-end 2019. During the quarter, the pipeline was unchanged at $5.8 billion.
Balance Sheet Position
CBRE Group exited first-quarter 2020 with cash and cash equivalents of $628.5 million, down from $971.8 million as of Dec 31, 2019.
As of Mar 31, 2020, the company had $3.4 billion of total liquidity. This comprised $560 million in cash in addition to the ability to borrow a total of $2.8 billion under its revolving credit facilities, net of any outstanding letters of credit.The company’s net leverage ratio was 0.59x as of the same date. This is 3.66x below the company’s primary debt covenant of 4.25x.
During the March-end quarter, the company repurchased a total of 1.1 million shares of its common stock for $50 million at an average price of $47.62 per share. Currently, the company has $350 million of stock-repurchase capacity.
How Have Estimates Been Moving Since Then?
Estimates review followed a downward path over the past two months. The consensus estimate has shifted -31.21% due to these changes.
At this time, CBRE has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
CBRE has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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