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Near-Term Outlook Upbeat for Real Estate Operation Stocks

Moumita Chattopadhyay

The Zacks Real Estate Operations industry comprises companies that provide leasing, property management, investment management, valuation, development services, facilities management, project management, transaction and consulting services, among others. Nonetheless, real estate investment trusts or REITs are excluded from this group.

The industry had been on a steady run, post the financial crisis. Commercial real estate markets enjoyed elevated demand for space, high occupancy, rising absorptions and escalating rents. A recovering economy and job-market gains have, undoubtedly, aided this growth. However, low-cost credit availability, as well as rising institutional capital inflows toward commercial real estate provided a decent impetus, aiding the industry to excel and helping prominent player, like CBRE Group (CBRE), register decent gains.

Let’s take a look at the industry’s three major themes:

Steady economy, capital availability and technology investments: A stable economic progression in the United States, together with steady employment growth, is likely to support the industry’s expansion. Moreover, easy availability of capital and comparatively lower levels of interest rates are anticipated to keep the momentum upbeat. These apart, investments in strategic acquisitions, human capital and technology will likely keep being the key focus for this industry’s constituent companies. These efforts offer significant competitive edge, help in market-share gains, and aid in differentiating from peers.

Outsourcing of real estate needs: Occupiers of real estate, such as corporations, public sector entities, health-care providers and others, are increasingly opting for outsourcing of real estate needs, and depending on the expertise of third-party real estate specialists for execution and efficiency improvement. This trend is likely to continue in the upcoming period, opening up scope for constituents of the real estate operations industry. Particularly, the large players are banking on this trend, with both existing as well as new client wins.

Maturing cycle, global economic and geopolitical uncertainty: Nevertheless, the industry seems to be entering the later stages of its growth cycle. Investment volumes are expected to remain soft, given investors’ cautious stance, although there is ample availability of relatively low-cost financing. Furthermore, trade tensions, rising geopolitical uncertainties and slowing regional economies in the Asia Pacific are anticipated to add to the woes, affecting transaction levels. In addition, though leasing demand is expected to remain robust through the remaining of the year, growth pace might be slower than the record year-ago levels.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Real Estate Operations industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #51, which places it at the top 20% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings per share outlook for the constituent companies in aggregate. Looking at the aggregate earnings per share estimate revisions, it appears that analysts are gaining confidence in this group’s growth potential. Over the past year, the industry’s earnings per share estimate for 2019 moved up 8.4%.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Leads on Stock Market Performance

The Zacks Real Estate Operations industry has outperformed both the broader Zacks Finance sector, and the Zacks S&P 500 composite in a year’s time.

The industry has rallied 20.9% during this period compared with the S&P 500’s rise of 12.8%. During the same time frame, the broader Finance sector has appreciated 6.8%.

One Year Price Performance



Industry’s Current Valuation

On the basis of forward 12-month price-to-EPS ratio, which is a commonly used multiple for valuing Real Estate Operations stocks, we see that the industry is currently trading at 20.00X compared to the S&P 500’s forward 12-month price-to-earnings (P/E) of 17.82X. The industry is also trading above the Finance sector’s forward 12-month P/E of 14.56X. This is shown in the chart below.

Forward 12 Month Price-To-Earnings Ratio


Over the last five years, the industry has traded as high as 23.11X, as low as 14.03X, with a median of 19.45X.

Bottom Line

In a nutshell, amid stable economic growth and steady employment gains, occupancy levels are high and rents decent. Interest-rate levels are still low and there is decent availability of capital in the market. Along with these, the rising trend of outsourcing of real estate needs by companies will provide ample scope for growth to the real estate operations industry.

Here we present three stocks from the industry with a favorable Zacks Rank that investors may consider adding to their portfolios.

Colliers International Group Inc. (CIGI): Headquartered in Toronto, Canada, Colliers International Group provides commercial real estate services including outsourcing and advisory services, lease brokerage and sales brokerage. The company's operates across the Americas, Europe, Middle East and Africa (EMEA) and the Asia Pacific. Currently, the stock sports a Zacks Rank # 1 (Strong Buy). The Zacks Consensus Estimate for 2019 earnings per share remained unchanged at $4.54, over the last 30 days. The figure indicates 11% year-over-year earnings per share growth.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Jones Lang LaSalle Incorporated (JLL): Headquartered in Chicago, IL, Jones Lang LaSalle offers commercial real estate and investment management services. Particularly, the company provides a full range of leasing, capital markets, integrated property and facility management, project management, advisory, consulting, valuations and digital solutions services locally, regionally and globally. The stock holds a Zacks Rank of 2 (Buy), currently. The Zacks Consensus Estimate for the current-year earnings per share has been revised 6.8% upward over the last seven days. Moreover, it suggests a projected increase of 5.7%, year over year.

Newmark Group, Inc. (NMRK): Headquartered in New York, Newmark Group operates as a full-service commercial real estate services business, with a comprehensive set of services and products offering for both owners and occupiers across the commercial real estate industry. The stock carries a Zacks Rank of 2, at present. The company’s ongoing-year earnings per share have been revised marginally north to $1.66, in seven days’ time. Additionally, the company’s long-term growth of earnings is projected at 8.7%.


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Newmark Group, Inc. (NMRK) : Free Stock Analysis Report
 
Jones Lang LaSalle Incorporated (JLL) : Free Stock Analysis Report
 
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