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On Jun 14, 2013, we reiterated our long-term recommendation on Jones Lang LaSalle Inc. (JLL - Analyst Report) at Neutral based on its top-line improvement, market share expansion, decent balance sheet and dividend hike as well as better-than-expected first-quarter results. However, we remain concerned about a relative decline in real estate fundamentals and stiff competition.

Why the Neutral Stance?

Jones Lang LaSalle’s first quarter 2013 adjusted earnings of 36 cents per share substantially surpassed the Zacks Consensus Estimate of 21 cents per share. However, it fell short of the year-ago quarter earnings of 50 cents per share. Though quarterly results benefited from decent growth in revenues yet higher expenses acted as a dampener.

The Zacks Consensus Estimate for 2013 moved north by 0.8% to $6.35 over the last 30 days. Also, for 2014, the Zacks Consensus Estimate went up by only 0.5% to $7.32 per share over the same time frame. The stock currently has a Zacks Rank #3 (Hold).

With an investment grade balance sheet and manageable debt position, the company is set to continue with its improving performance in the coming quarters. It is actively capitalizing on market consolidations. Leveraging its superior operating platform and market share expansion, the company’s adjusted operating income increased almost five times over the last 10 years.

The deal with HSBC Holdings plc. also augurs well. Encouragingly, its board of directors declared a 10% hike in its semi annual dividend, demonstrating the company’s confidence in its cash generating capabilities.

However, with a relative decline in real estate fundamentals, the demand for Jones Lang’s services has fallen compared to the pre-recession levels, which is a cause of concern. Moreover, the company faces stiff competition from international, regional, and local players in the market.

Other REIT Stocks to consider

Some better performing REITs include E-House (China) Holdings Limited (EJ - Snapshot Report) having a Zacks Rank #1 (Strong Buy) while Desarrolladora Homex, SAB de CV carries a Zacks Rank #2 (Buy).
 

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