Despite the market mayhem in the recent quarters, the coronavirus pandemic has accelerated certain trends and created opportunities for growth of the Zacks
Real Estate Operations industry. Further, the rising tendency of outsourcing of real estate needs by companies is opening up scopes, while technological investments are creating a competitive edge. Additionally, leasing and property sales volumes are likely to pick up amid hopes of a vaccine and as the uncertainty recedes, making FirstService Corporation ( FSV Quick Quote FSV - Free Report) , Redfin Corporation ( RDFN Quick Quote RDFN - Free Report) and eXp World Holdings, Inc. ( EXPI Quick Quote EXPI - Free Report) enriching industry picks. However, growth of some of the constituent members of this industry might be challenging in the days to come amid the prevailing health crisis and the macroeconomic turbulence. About the Industry
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. Nonetheless, real estate investment trusts or REITs are excluded from this group.
Economic trends, government policies, as well as the global and regional real estate markets determine this industry’s performance. Economic activity, employment growth, interest-rate levels, cost and availability of credit, tax and regulatory policies, as well as the geopolitical environment are the key factors shaping up the global real estate market’s fate. What’s Shaping Future of the Real Estate - Operations Industry? COVID-19 pandemic accelerating trends and creating opportunities: While the pandemic has weighed significantly on a number of segments of this industry, it is also accelerating a number of trends that were present before the onset of the pandemic, as well as compelling businesses to transform. In fact, though the higher-margin property leasing and sales businesses continued to being affected, global industrial leasing activity backed by e-retailing as well as project management activities for occupier clients have been hogging the limelight, proving their resilience amid the pandemic. A number of workplace trends that were present prior to the pandemic, like experiential workspaces, outsourced real estate functions, along with greater-than-before focus on employee well-being have indeed gained prominence, creating opportunities for the constituents of the commercial real estate industry to bank upon. Outsourcing of real estate needs to gather more steam: Occupiers of real estate, such as corporations, public sector entities, health-care providers and others, have been increasingly opting for the outsourcing of real estate needs. Companies are depending on the expertise of third-party real estate specialists for execution and efficiency improvement. This trend is likely to continue in the upcoming period, opening up prospects for constituents of the real estate operations industry. Particularly, the large players are banking on this trend, with both existing as well as new client wins and expansions, which includes advising on re-entry strategies and code of behavior. Moreover, there is healthy demand from logistics, financial services and technology industries. Nevertheless, any robust growth might be restrained given the economic uncertainty and cautious attitude of clients/corporate occupiers leading to delays on real estate decisions. Technology Investments Offer Competitive Edge: Investments in acquisitions, human capital and technology will likely keep being the key focus for this industry’s constituent companies. Specifically, the pandemic has aggravated the technological disruption in the commercial real estate industry, and the big players in this industry are focusing on process improvements and leveraging their technology platform. These efforts offer significant scope for growth even amid the social-distancing measures, help in market-share gains, and aid in differentiating from peers. The pandemic, Vaccine Hopes and Low rates: The pandemic has resulted in uncertainty, interruption of business activities, and substantially affected global markets as well as consumer and business sentiment. Although there have been improvements in market conditions compared to the onset of the pandemic, real estate acquisition, disposition, financing, construction and leasing activities are still likely to be subdued in the near term until the health crisis is resolved. Investment in global commercial real estate as well as leasing volumes suffered, with deals on hold and in flux, and depending on the economic recovery, volumes will likely be affected. In addition, any decline in the value of commercial real estate and in rents due to the coronavirus crisis and economic weakness will thwart the constituent company’s revenues from property commissions. Also, potential delays in payments from clients are key concerns. Moreover, though economic growth rebounded during the third quarter, in many countries the pace of recovery is expected to be slower, with the unwinding of fiscal stimulus as well as cautious approach of households and businesses. Nevertheless, positive development on the COVID-19 vaccine front is likely to raise hopes for this industry. Furthermore, with substantial liquidity available, record low interest rates as well as government interventions continuing to support debt markets worldwide, commercial real estate capital markets are likely to recover sooner than the overall economy. 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 #111, which places it at the top 44% 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 the positive earnings per share outlook for the constituent companies in aggregate. Looking at the aggregate earnings per share estimate revisions, it appears that analysts are gaining confidence, of late, in this group’s growth potential. Over the past month, the industry’s earnings per share estimate for 2020 has moved 20.3% north. Before we present a few stocks that you may still want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture. Industry Leads on Stock Market Performance
The Zacks Real Estate Operations industry has outperformed the broader Zacks Finance sector as well as the S&P 500 composite so far in the year.
The industry has appreciated 14.2%, during this period, as against the S&P 500’s rally of 13%. Meanwhile, the broader Finance sector has lost 5.9%. Year-to-Date Price Performance Industry’s Current Valuation
On the basis of the 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 31.19X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 22.64X. However, the industry is trading above the Finance sector’s forward 12-month P/E of 17.12X. 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 31.19X, as low as 11.80X, with a median of 16.42X.
3 Real Estate – Operation Stocks Moving Ahead of the Pack FirstService Corporation: Headquartered in Toronto, Canada, FirstService Corporation offers property services to commercial, institutional and residential customers, primarily in North America and internationally. The company, a leader in essential outsourced property services in the United States and Canada, is poised to benefit from increased activity levels. FirstService currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for 2020 and 2021 earnings per share moved 17.6% and 7.3% north, respectively, over the past month, reflecting positive sentiments. The figures suggest an increase of 9% and 12.4% year on year, respectively. The company’s shares have rallied 41.9% so far in the year. Exp World Holdings Inc.: This Washington-based company provides cloud-based real estate brokerage services in the United States, Canada, the U.K., Australia and South Africa. It is the holding company for eXp Realty and eXp World Technologies, which operates the VirBELA platform. Amid the pandemic and social-distancing trend, demand for cloud-based real estate brokerage services, and rise in use and adoption of VirBELA will likely drive eXp World Holdings’ growth.
eXp World Holdings carries a Zacks Rank #2 (Buy), at present. The Zacks Consensus Estimate for 2020 and 2021 earnings per share moved 36.7% and 18% upward, respectively to 41 cents and 59 cents. The figures also represent significant year-on-year increases. The stock has appreciated 26.9% over the past three months.
Redfin Corporation: Headquartered in Seattle, WA, Redfin is engaged in providing residential real estate search and brokerage services. The company provides an online real estate marketplace and offers real estate services, such as assisting individuals to purchase or sell their residential property. It also provides title and settlement services, and originate mortgages. The company’s expertise in the online platform in an improving housing market will support it on its growth trajectory. This Zacks Ranked #2 company has an impressive earnings surprise history, having beaten estimates in each of the trailing four quarters, the average beat being 33.08%. Furthermore, the consensus estimate for the fourth-quarter earnings per share moved north over the past month, reflecting analysts’ bullish expectations. The stock has also surged 121.6% so far in the year.