Acquisitions & Occupier Outsourcing Fuel CBRE Group's Growth
Shares of CBRE Group Inc. CBRE have gained 20.7% in the past six months compared with its industry 16.2% growth. Earlier this month, the company delivered a better-than-expected third-quarter 2019 adjusted earnings per share, indicating stellar revenue growth. Particularly, global occupier outsourcing, U.S. property sales and commercial mortgage origination business lines were strong, though a lighter quarter of development asset sales partly muted its growth tempo.
The fundamentals appear solid for this commercial real estate service firm, with adequate scope for stock price appreciation in the long run.
CBRE Group has a robust scale as the largest commercial real estate services and investment firm (based on 2018 revenues). It is among the few companies offering a full suite of services to multi-national clients. Moreover, the company has grown organically and banked on strategic in-fill acquisitions to boost service offerings and geographic reach. Its market-leading position and strategic reinvestment in business, specifically on the digital and technology front, is likely to give it a competitive edge in capitalizing on commercial real estate industry tailwinds.
The company has opted for a better-balanced and more resilient business model, and in pursuit of this, has shifted the revenue mix toward more contractual sources and leasing. Contractual revenues and leasing, largely recurring over time, constituted 75% of total fee revenues in third-quarter 2019 compared with the 61% recorded in 2006. This makes the company resilient to market disruptions and positions it well to achieve both top- and bottom-line growth amid capital market headwinds. Notably, CBRE Group’s projected sales growth is 11.1% for 2019, well ahead of the break-even estimate for the industry.
Further, the company’s Global Workplace Solutions segment, which provides a broad suite of integrated, contractually-based services to occupiers of real estate, including facilities management, project management, transaction management and management consulting, is well poised to grow. Occupiers of real estate are increasingly opting for outsourcing and depending on the expertise of third-party real estate specialists for better execution and efficiency. As a result, CBRE Group is witnessing continued momentum from both new and existing customers.
CBRE Group also enjoys liquidity of around $3.2 billion as of Sep 30, 2019, and has a low leverage level. These provide the company a solid platform for growth. Its balance sheet is robust, with net leverage of about 0.65 terms of adjusted EBITDA at the end of the third quarter. The company’s solid business momentum, credit profile and growth in recurring revenues are likely to ensure steady cash flow in the upcoming period.
Furthermore, the recent trend in estimate revisions of 2019 earnings indicates a favorable outlook for the company. In fact, the stock has seen the Zacks Consensus Estimate for the current-year earnings per share been revised 1.4% upward over the past month. Therefore, given the improvement on fundamentals and positive estimate revisions, there is decent upside potential to the stock. Also, the company’s long-term growth is projected at 11%, ahead of the industry’s average of 8.6%.
However, investment volumes are expected to remain soft following a record 2018 as investors adopt a cautious approach. Also, trade tensions, political uncertainties and volatile equity markets are anticipated to increase woes, affecting transaction levels. In addition, though leasing demand is expected to remain robust in the rest of the year, the pace of growth is likely to be slower than the record year-ago levels.
CBRE Group currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Colliers International Group Inc.’s CIGI Zacks Consensus Estimate for 2019 remained unchanged at $4.54 in a month’s time. At present, the stock sports a Zacks Rank of 1 (Strong Buy). Its shares have rallied 16.2% over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
RE/MAX Holdings, Inc.’s RMAX Zacks Consensus Estimate for the ongoing year remained unrevised at $2.17 in a week’s time. The stock currently carries a Zacks Rank of 2. Its shares have appreciated 14.7% over the past six months.
Newmark Group, Inc.’s NMRK Zacks Consensus Estimate for the current year moved north to $1.66 in a month’s time. Currently, the stock holds a Zacks Rank of 2. Its shares have gained 48.6% in six months’ time.
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