On Nov 20, 2013, we reaffirmed our Neutral recommendation on
CBRE Group Inc.
). We note that though commercial mortgage brokerage revenue
headwinds, currency fluctuations and cautious attitude of
occupiers and investors remain headwinds, the company's solid and
flexible capital structure, strategic acquisitions as well
as its growing outsourcing, leasing and investment management
business would strengthen its position going forward. Hence, our
Neutral stance remains in place.
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CBRE Group's third-quarter 2013 adjusted earnings came in at 30
cents per share, missing the Zacks Consensus Estimate by 3 cents.
However, it was 15% higher than 26 cents earned in the prior-year
quarter. Though the company experienced a rise in revenues,
higher expenses acted as the dampener.
During the quarter, CBRE signed a total of 54 Global Corporate
Services (GCS) contracts, including 20 with new customers such as
Tesla Motors Inc.
) and EMG, a Japan-based petroleum and petrochemical company.
Property sales remained the leading growing service line in the
third quarter, while leasing growth accelerated and occupier
outsourcing posted double-digit growth. Yet, commercial mortgage
brokerage revenue declined owing to the negative impact from the
U.S. Government-Sponsored Enterprises' (GSEs) initiatives to
scale back their lending activity, as commanded by their
regulators. We believe that the new regulatory limits on GSE
lending would continue to restrict commercial mortgage brokerage
business revenues going forward.
For CBRE, over the last 30 days, the Zacks Consensus Estimate for
2013 fell by 0.7% to $1.43 per share and for 2014 it moved down
1.2% to $1.68. Therefore, the stock currently carries a Zacks
Rank #4 (Sell).
Nevertheless, we note that due to the gradual economic recovery,
vacancy rates are decreasing while rental rates are exhibiting an
improving trend. Moreover, with ample availability of low-cost
credit, property sales have increased as investors are looking
for a decent yield. As a result, we expect sustained healthy
property sales activity in the upcoming quarters as well.
Moreover, in recent times, the company has opted for a number of
strategic acquisitions including CB Richard Ellis Carmody, KLMK
Group, Alan Selby & Partners to expand its business in the
U.S. and U.K. and is in a deal to acquire UK-based commercial
building technical engineering services provider, Norland Managed
Services Ltd. for increasing its capabilities and expanding its
corporate outsourcing platform in Europe. We believe that such
opportunistic acquisitions would serve as growth drivers,
supplementing the company's organic growth.
Other Stocks to Consider
Better-placed stocks in the same industry include
E-House (China) Holdings Limited
Kennedy-Wilson Holdings Inc.
). Both these stocks carry a Zacks Rank #1 (Strong Buy).