Shares of CBRE Group Inc. (CBRE - Free Report) have gained 6.3% in the past three months compared with its industry’s growth of 5.2%. Further, the trend in current-year earnings estimate revisions indicates a solid outlook for the company. The fundamentals appear solid for this Zacks Rank #2 (Buy) stock and there are enough scope for its price appreciation in the near term.
In fact, CBRE Group has a robust scale as the largest commercial real estate services and investment firm (based on 2017 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 its service offerings and geographic reach.
With expanded capability to service, the company’s large client base has bumped up from 19 in 2012 to 82 in 2017. As large corporations continue to look to limit the number of service providers, CBRE Group will likely continue gaining from this trend. Also, strategic reinvestment in its business, specifically on the technology front, is expected to set CBRE Group apart from its peers.
In addition, recently, CBRE Group reported better-than-expected adjusted earnings per share of 74 cents for second-quarter 2018. The figure also marked a 10.4% increase from the prior-year tally. Results indicate strong revenue growth, driven by leasing, occupier outsourcing and development services. The company also raised its outlook for full-year 2018. It expects adjusted earnings per share of $3.10 to $3.20, up from $3.00 to $3.15, denoting 15% growth for the full year at the mid-point of the outlook.
Notably, CBRE Group has made concerted efforts to diversify its revenue base over the past years. The company has opted for a better-balanced and more resilient business model, and in pursuit of this, shifted the revenue mix toward more contractual sources and leasing. Contractual revenues and leasing, largely recurring over time, constituted 76% of total fee revenues in the June-end quarter compared with 61% witnessed in 2006. This makes the company resilient to market disruptions and positions it well to achieve top- and bottom-line growth even amid capital-market headwinds.
Further, occupiers of real estate are increasingly opting for outsourcing and depending on the expertise of third-party real estate specialists to achieve improvement in execution and efficiency. With a market-leading position and being one of the few companies boasting occupier outsourcing capabilities on a global scale, CBRE Group remains well poised to capitalize on such favorable trends.
In fact, growth was broad based with total contracts in second-quarter 2018, comprising 44 new, 79 expansions and 34 renewals. The Europe, the Middle East and Africa (EMEA), and Asia Pacific (APAC) segment contract activity remained strong in recently-reported quarter, while outsourcing pipeline remains robust, highlighting strong demand. Further, the company continues to achieve diversification in terms of client-industry mix, which is encouraging, while the FacilitySource acquisition strengthened the company’s facilities-management capabilities.
The company has liquidity of around $2.6 billion as of Jun 30, 2018, and a low leverage level. In fact, it witnessed historical cash flow growth (three to five years) of 17.5%, which comfortably exceeded 10.3% growth registered by the industry. Also, its current cash-flow growth of 16.0% compares favorably with the 11.9% increase estimated for the industry. This adequate liquidity and cash flow offer the company a solid platform for growth. Furthermore, CBRE Group’s return on equity is 23.5% compared with the industry’s average of around 4.8%. This shows that the company reinvests more efficiently compared to the industry.
Other Key Picks
Investors can also consider other top-ranked stocks from the real estate space like Colliers International Group Inc. (CIGI - Free Report) , TPG RE Finance Trust, Inc. (TRTX - Free Report) and Marcus & Millichap, Inc. (MMI - Free Report) . While Colliers International Group sports a Zacks Rank of 1 (Strong Buy), TPG RE Finance Trust and Marcus & Millichap carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Colliers International Group’s Zacks Consensus Estimate for 2018 earnings moved up 3.9% to $3.74 over the past month.
TPG RE Finance Trust’s Zacks Consensus Estimate for current-year earnings remained unchanged at $1.78 in a month’s time.
Marcus & Millichap’s Zacks Consensus Estimate for 2018 earnings remained unchanged at $2.04 over the past month.
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