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Real Estate Operations Stocks' Near-Term Outlook Looks Upbeat
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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. However, real estate investment trusts or REITs are excluded from this group.
This industry had been making a steady run, post the financial crisis, as commercial real estate markets enjoyed increased demand, rising absorptions, high occupancy and escalating rents. This was backed by a recovering economy, job-market gains, low-cost credit availability, as well as rising institutional capital inflows toward commercial real estate. Particularly, the slow-but-steady pace of economic growth and low interest rates provided a decent impetus, aiding the industry to excel.
Let us now look at the major themes in the industry:
Healthy economy, capital availability and technology investments: Although economic growth will likely moderate to some extent this year, the level is expected to remain healthy and continue backing the industry. In fact, easy availability of capital and comparatively lower levels of interest rates, high consumer confidence, low unemployment level, high consumption levels and business investment are expected to keep the momentum upbeat.
Moreover, the constituent companies in this industry are focusing on investments in strategic acquisitions, human capital and technology which provide significant competitive edge, aid in market share expansion, and help differentiate 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 is opening up scope for constituents of the real estate operations industry and the large players are banking on this trend, with both existing as well as new client wins.
Maturing cycle, trade tensions and political uncertainty: The industry seems to be entering the later stages of its growth cycle. Further, trade tensions, political uncertainty and volatile equity markets are likely to negatively impact business sentiment. As such, after recording decent growth for years, investment volumes are anticipated to be softer given the cautious approach of the investors. In addition, any rise in interest rates might affect capital market activities, moving ahead.
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 #55, which places it at the top 22% 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.
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’s Stock Market Performance
The Zacks Real Estate Operations industry has outperformed the broader Zacks Finance sector, but lagged the Zacks S&P 500 composite in a year’s time.
The industry has edged down 0.1% during this period compared to the S&P 500’s uptick of 1.7%. During the same time frame, the broader Finance sector has declined 6.7%.
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 19.04X compared to the S&P 500’s forward 12-month price-to-earnings (P/E) of 16.87X. The industry is also trading above the Finance sector’s forward 12-month P/E of 13.74X. 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 28.26X, as low as 14.29X, with a median of 19.42X.
Bottom Line
In a nutshell, domestic economy is gathering steam, and consumer and business confidence are building up as well. Furthermore, occupancy levels remain healthy, and consumer spending continues to be robust amid tax cuts and a tighter labor market, which is pushing up wages. Also, despite rate hikes, interest-rate levels are still low and there is decent availability of capital in the market. Further, amid rising trend of outsourcing of real estate needs by companies, the real estate operations industry is having solid scope for growth.
Here we present three stocks from the industry with a favorable Zacks Rank that investors may consider adding to their portfolios.
Jones Lang LaSalle Inc. (JLL - Free Report) : Popularly known as JLL, Jones Lang LaSalle is a leading, global professional services and investment management firm specializing in real estate. The stock sports a Zacks Rank #1 (Strong Buy), at present. The company’s 2019 earnings per share have been revised 2.4% north to $11.34, in seven days’ time. Additionally, its 2020 earnings per share will likely witness year-over-year improvement of 6.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.
CBRE Group, Inc. (CBRE - Free Report) : Headquartered in Los Angeles, CBRE Group is a commercial real estate services and investment firm. It offers a wide range of services to tenants, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial real estates in all major metropolitan areas across the globe. CBRE Group has a Zacks Rank #2 (Buy), currently. The stock has seen the Zacks Consensus Estimate for the current-year earnings per share been revised 2.1% upward over the last week. Moreover, it indicates a projected increase of 5.2% year over year.
FirstService Corporation (FSV - Free Report) : Headquartered in Toronto, Canada, FirstService Corporation offers property services to commercial, institutional and residential customers, primarily in North America and internationally. Currently, the stock has a Zacks Rank of 2. The Zacks Consensus Estimate for 2019 earnings per share moved up 1.7% to $3.01, over the last 30 days. The figure also indicates 15.3% year-over-year earnings per share growth in 2019.
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Image: Bigstock
Real Estate Operations Stocks' Near-Term Outlook Looks Upbeat
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. However, real estate investment trusts or REITs are excluded from this group.
This industry had been making a steady run, post the financial crisis, as commercial real estate markets enjoyed increased demand, rising absorptions, high occupancy and escalating rents. This was backed by a recovering economy, job-market gains, low-cost credit availability, as well as rising institutional capital inflows toward commercial real estate. Particularly, the slow-but-steady pace of economic growth and low interest rates provided a decent impetus, aiding the industry to excel.
Let us now look at the major themes in the industry:
Healthy economy, capital availability and technology investments: Although economic growth will likely moderate to some extent this year, the level is expected to remain healthy and continue backing the industry. In fact, easy availability of capital and comparatively lower levels of interest rates, high consumer confidence, low unemployment level, high consumption levels and business investment are expected to keep the momentum upbeat.
Moreover, the constituent companies in this industry are focusing on investments in strategic acquisitions, human capital and technology which provide significant competitive edge, aid in market share expansion, and help differentiate 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 is opening up scope for constituents of the real estate operations industry and the large players are banking on this trend, with both existing as well as new client wins.
Maturing cycle, trade tensions and political uncertainty: The industry seems to be entering the later stages of its growth cycle. Further, trade tensions, political uncertainty and volatile equity markets are likely to negatively impact business sentiment. As such, after recording decent growth for years, investment volumes are anticipated to be softer given the cautious approach of the investors. In addition, any rise in interest rates might affect capital market activities, moving ahead.
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 #55, which places it at the top 22% 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.
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’s Stock Market Performance
The Zacks Real Estate Operations industry has outperformed the broader Zacks Finance sector, but lagged the Zacks S&P 500 composite in a year’s time.
The industry has edged down 0.1% during this period compared to the S&P 500’s uptick of 1.7%. During the same time frame, the broader Finance sector has declined 6.7%.
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 19.04X compared to the S&P 500’s forward 12-month price-to-earnings (P/E) of 16.87X. The industry is also trading above the Finance sector’s forward 12-month P/E of 13.74X. 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 28.26X, as low as 14.29X, with a median of 19.42X.
Bottom Line
In a nutshell, domestic economy is gathering steam, and consumer and business confidence are building up as well. Furthermore, occupancy levels remain healthy, and consumer spending continues to be robust amid tax cuts and a tighter labor market, which is pushing up wages. Also, despite rate hikes, interest-rate levels are still low and there is decent availability of capital in the market. Further, amid rising trend of outsourcing of real estate needs by companies, the real estate operations industry is having solid scope for growth.
Here we present three stocks from the industry with a favorable Zacks Rank that investors may consider adding to their portfolios.
Jones Lang LaSalle Inc. (JLL - Free Report) : Popularly known as JLL, Jones Lang LaSalle is a leading, global professional services and investment management firm specializing in real estate. The stock sports a Zacks Rank #1 (Strong Buy), at present. The company’s 2019 earnings per share have been revised 2.4% north to $11.34, in seven days’ time. Additionally, its 2020 earnings per share will likely witness year-over-year improvement of 6.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.
CBRE Group, Inc. (CBRE - Free Report) : Headquartered in Los Angeles, CBRE Group is a commercial real estate services and investment firm. It offers a wide range of services to tenants, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial real estates in all major metropolitan areas across the globe. CBRE Group has a Zacks Rank #2 (Buy), currently. The stock has seen the Zacks Consensus Estimate for the current-year earnings per share been revised 2.1% upward over the last week. Moreover, it indicates a projected increase of 5.2% year over year.
FirstService Corporation (FSV - Free Report) : Headquartered in Toronto, Canada, FirstService Corporation offers property services to commercial, institutional and residential customers, primarily in North America and internationally. Currently, the stock has a Zacks Rank of 2. The Zacks Consensus Estimate for 2019 earnings per share moved up 1.7% to $3.01, over the last 30 days. The figure also indicates 15.3% year-over-year earnings per share growth in 2019.
Is Your Investment Advisor Fumbling Your Financial Future?
See how you can more effectively safeguard your retirement with a new Special Report, “4 Warning Signs Your Investment Advisor Might Be Sabotaging Your Financial Future.”
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