Is It Wise to Retain Jones Lang (JLL) in Your Portfolio Now?
Jones Lang LaSalle Incorporated JLL, popularly known as JLL, is well-poised to benefit from the continued strength of its resilient lines of business and favorable outsourcing trends. However, persistent macroeconomic uncertainty, geopolitical unrest and a high interest rate environment have kept JLL’s transaction-based businesses in distress over the past few quarters. We expect this trend to continue in the near term and weigh on JLL’s growth.
What’s Aiding JLL?
JLL has a broad range of real estate products and services and extensive knowledge of domestic and international real estate markets, thus enabling it to operate as a single-source provider of real estate solutions. The company is focused on balanced revenue growth across profitable markets. Its superior client services and strategic investment in technology and innovation are expected to help grow market share and win relationships. Strategic investments in the technology front helped the company navigate challenging times.
While we expect a year-over-year fall of 12.8% and 1.7% in fee revenues in 2023 and 2024, respectively, the metric is estimated to increase 21.1% in 2025. The adjusted EBITDA margin is projected to be 10.3% in 2023, 12.9 % in 2024 and 16% in 2025.
JLL’s Work Dynamics segment is well-poised to benefit from favorable trends in the outsourcing business. Corporations are looking for the company’s wide-ranging knowledge and the breadth of its services, including sustainability. In the post-pandemic period, this trend for organizations to outsource real estate services while progressively looking for strategic advice on reimagining their workspaces and workstyles to boost culture, attract talent and drive performance is likely to gather more strength.
Amid this, new contract wins and the expansion of services with existing clients are likely to aid JLL’s performance in the upcoming period. We expect a year-over-year increase of 5.1% in JLL’s Work Dynamics total revenues in 2023.
JLL is focused on maintaining balance sheet strength and adequate liquidity to enjoy operational flexibility. The company exited the third quarter of 2023 with $2.1 billion of liquidity and a net leverage of 2.2X.
In November 2023, JLL amended its bank credit facility and raised the borrowing capacity to $3.3 billion to maintain its operating flexibility and support its growth strategy. With a solid balance sheet, added financial flexibility and manageable debt maturities, the company is well-poised to sail through any challenging times and capitalize on solid opportunities.
Shares of this Zacks Rank #3 (Hold) company have rallied 19.1% in the past month, outperforming the industry’s growth of 12.9%.
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What’s Hurting JLL?
Persistent macroeconomic uncertainty and geopolitical unrest have resulted in an uneven recovery in the global economy. Also, capital markets have slowed down due to restrictive underwriting assumptions and high debt costs in an elevated interest rate environment. The global capital market investment sales, debt and equity advisory pipeline are affected due to muted deal proliferation.
Occupiers continue to adopt a cautious approach under present market circumstances, awaiting greater price discovery and causing a delay in the closing timeline for transactions, particularly for large-scale transactions. As a result, an industry-wide slowdown in investment sales and leasing activity across several asset types has led to underperformance in the company’s transaction-based businesses over the past few quarters, specifically Capital Markets and Leasing under Markets Advisory.
With subdued consumer and business sentiment expected in the near term, JLL’s transaction-based businesses are likely to continue to be adversely impacted. For 2023, we estimate a year-over-year decline of 14.1% and 29.9% in fee revenues for JLL’s Market Advisory and Capital Markets segments, respectively.
Competition from other real estate service providers and institutional players on the international, regional and local ground is a concern for JLL. Also, some of them are larger on a regional or local basis or have a stronger position in a specific market segment or service offering. This could lead to an increase in the commoditization of services and curb JLL’s ability to raise fees, affecting profitability.
A Stock to Consider
A better-ranked stock from the broader real estate sector is Legacy Housing Corporation LEGH, which carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Legacy Housing Corporation’s 2023 earnings per share has moved 5.7% upward in the past two months to $2.59.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.
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