CBRE Group (CBRE - Free Report) 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 acquisitions to boost its service offerings and geographic reach.
Most recently, the company announced the acquisition of a consulting firm focused on serving healthcare facility owners named Noveen Consulting. Based in Louisville, KY, Noveen Consulting offers facility condition assessments, commissioning, energy management, facility optimization, and technology consulting & implementation strategies. Its buyout is a strategic fit as CBRE Group’s healthcare capabilities get a boost and the company will have a competitive advantage amid rapidly evolving environment for healthcare providers.
Prior to that, CBRE Group announced the buyout of CB Richard Ellis-N.E. Partners, L.P. (CBRE/New England). It was a joint venture with Whittier Partners Group and the largest full-service commercial real estate services operation in New England.
Importantly, the company’s M&A activity increased in 2017 and it made 11 acquisitions. Such buyout efforts continued into 2018 as well and the company made three acquisitions in the second quarter, the most notable being FacilitySource, which is a leader in technology-based procurement and facility management solutions in the United States. As market conditions continue to improve, we believe these opportunistic acquisitions and strategic investments will likely serve as growth drivers, supplementing its organic growth.
The company has made concerted efforts to diversify its revenue base over the past years. It 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. This makes the company resilient to market disruptions and positions it well to achieve top- and bottom-line growth even amid capital-market headwinds. Also, strategic reinvestment in the company’s business, specifically on the technology front, is expected to set CBRE Group apart from its peers.
Furthermore, 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 addition, CBRE Group 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 10.34% 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 2.58%. This shows that the company reinvests more efficiently compared to the industry.
Shares of CBRE Group have outperformed the industry it belongs to, year to date. During this period, shares of the company have gained 5.8%, against the industry’s decline of 5.4%. Moreover, the trend in estimate revisions of current-year earnings per share indicates a favorable outlook for the company. In fact, the stock has seen the Zacks Consensus Estimate for 2018 EPS being revised upward 1.3% in two months’ time. Therefore, with fundamentals appearing solid for this Zacks Rank #2 (Buy) stock, there are enough scope for its price appreciation in the near term.
Other Key Picks
Investors interested in the real estate industry can also consider some other top-ranked stocks like Colliers International Group Inc. (CIGI - Free Report) , Deutsche Wohnen SE and PS Business Parks, Inc. (PSB - Free Report) . While Colliers International Group and Deutsche Wohnen flaunt a Zacks Rank of 1 (Strong Buy), PS Business Parks carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Colliers International’s Zacks Consensus Estimate for 2018 earnings moved 3.9% north to $3.74 in two months’ time.
The current-year earnings estimate for Deutsche Wohnen remained unchanged at $1.58 in the past week.
The current-year funds from operations per share estimate for PS Business Parks inched up 0.3% to $6.39 over the past two months.
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