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Jones Lang LaSalle (JLL) Up 21.4% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Jones Lang LaSalle (JLL). Shares have added about 21.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Jones Lang LaSalle due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Jones Lang LaSalle Q3 Earnings & Revenues Lag Estimates

JLL reported third-quarter 2022 adjusted EPS of $3.40, lagging the Zacks Consensus Estimate of $4.52. The reported figure declined 25.4% from the prior-year quarter’s $4.56.

JLL’s transaction-based businesses, specifically the Capital Markets and Leasing under Markets Advisory, were hit by higher interest rates and rapid changes in the economic sentiment globally.  However, results reflected decent performance in annuity-based businesses like Workplace Management under Work Dynamics and Property Management under Markets Advisory.

Revenues in the quarter totaled $5.17 billion, falling 5.9% from the year-ago quarter’s $4.88 billion. The Zacks Consensus Estimate for the same was pegged at $5.19 billion.

The quarterly adjusted EBITDA margin, calculated on a fee-revenue basis, fell to 13.5% (USD) from 17.2% in 2021 due to lower Capital Markets revenues, higher compensation expenses, and incremental T&E and marketing expenses.

Segment-Wise Performance

During the third quarter, the Market Advisory segment’s revenues and fee revenues came in at $1.11 billion and $847.9 million, respectively, reflecting a rise of 3% and 1% (in USD) year over year. Growth in the Leasing line of business was mixed and improved only 1.1% (USD). Although average deal size increased, particularly in the office sector, deal volume fell in almost all asset classes.

Revenues and fee revenues for the Capital Markets segment were $595.2 million and $579.1 million, respectively, decreasing 12.5% and 9.4% (in USD) year over year. The fall was due to lower Investment Sales and Equity Advisory fees as higher interest rates and economic uncertainty hurt transaction volumes and extended the deal-cycle time.

JLL’s Work Dynamics segment reported revenues and fee revenues of $3.28 billion and $452.9 million, respectively, up 11.1% and 8.7% (in USD) year over year. The rise in revenues and fee growth was attributable to new client wins and the expansion of existing global mandates in Workplace Management services. The continued momentum in project demand from the return-to-office movement and lower pandemic-related restrictions drove the Project Management services’ growth.

JLL Technologies segment reported revenues and fee revenues of $56.5 million and $52.7 million, respectively, rising 45.6% and 53.2% (in USD) from the prior-year quarter levels. This top-line growth included $9.2 million of incremental fee revenues from acquisitions closed in late 2021. Backed by new customers and growth from existing customers in software and solutions offerings, organic fee revenues increased 28% year over year.

The revenues and fee revenues in the LaSalle segment fell 4.1% and 5.9% (in USD) year over year to $124.5 million and $166 million, respectively. The rise in advisory fees was driven by strong capital raising along with a rise in the fair value of assets under management over the trailing 12 months. However, greater economic uncertainty slowed down transaction activity and led to lower incentive fees associated with real estate dispositions on behalf of clients, offsetting the growth in advisory fees.

As of Sep 30, 2022, LaSalle had $81.7 billion of real estate AUM, down from $82.1 million as of Jun 30, 2022. This resulted from the decrease in foreign currency and dispositions and withdrawals, partially offset by the rise in acquisitions and acquisitions.

Balance Sheet

JLL exited third-quarter 2022 with cash and cash equivalents of $489.4 million, down from $568.0 million as of Jun 30, 2022.

As of Sep 30, 2022, the net leverage ratio was 1.1, up from 1.0 as of Jun 30, 2022, and 0.4 as of Sep 30, 2021. The corporate liquidity was $2.1 billion as of the same date.

The company repurchased 909,200 shares for $153.5 million during the third quarter.

During the third quarter, JLL amped up the borrowing capacity of its credit facility from $2.75 billion to $3.35 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

The consensus estimate has shifted -25.08% due to these changes.

VGM Scores

Currently, Jones Lang LaSalle has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Jones Lang LaSalle has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Jones Lang LaSalle belongs to the Zacks Real Estate - Operations industry. Another stock from the same industry, CBRE Group (CBRE), has gained 15.5% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

CBRE reported revenues of $7.53 billion in the last reported quarter, representing a year-over-year change of +10.8%. EPS of $1.13 for the same period compares with $1.39 a year ago.

CBRE is expected to post earnings of $1.22 per share for the current quarter, representing a year-over-year change of -44.3%. Over the last 30 days, the Zacks Consensus Estimate has changed -14.6%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for CBRE. Also, the stock has a VGM Score of B.

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