Shares of CBRE Group Inc. (CBRE - Free Report) have gained 7.8% in the past three months compared with its industry 4.3% growth. The company’s better-than-expected second-quarter 2019 adjusted earnings per share reflect strong revenue growth, driven by leasing, occupier outsourcing and U.S. capital markets. Also, the increase in guidance on the back of its robust performance in the first half of the year is impressive.
The fundamentals appear solid for this Zacks Rank #2 (Buy) stock, which has a VGM Score of B. Moreover, there is enough scope for the stock’s price appreciation in the near term. Let’s now delve into its strengths.
Reasons to Buy CBRE
Robust Scale: CBRE Group has a robust scale as the largest commercial real estate services and investment firm (based on 2018 revenues). It is among the few companies offering a full suite of services to multi-national clients. Markedly, the company has grown organically and banked on strategic in-fill acquisitions to boost service offerings and geographic reach. The company’s market-leading position and strategic reinvestment in business, specifically on the digital and technology front, is likely to give it a competitive edge in capitalizing on commercial real estate industry tailwinds.
Diversified and Contractual Revenue Base: CBRE Group has been making concerted efforts to diversify the revenue base over the past few 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 77% of its total fee revenues in second-quarter 2019 compared with 61% recorded in 2006. This makes the company resilient to market disruptions and positions it well to achieve both top and bottom-line growth even amid capital market headwinds. Notably, CBRE Group’s projected sales growth is 4.72% for 2019.
Occupiers Outsourcing Business: The company’s Global Workplace Solutions segment, which provides a broad suite of integrated, contractually-based services to occupiers of real estate, including facilities management, project management, transaction management and management consulting, is well poised to grow. 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.
Balance Sheet Strength and High ROE: CBRE Group had a liquidity of around $2.96 billion as of Jun 30, 2019, and a low leverage level. Adequate liquidity and cash flow offer the company a solid platform for growth. The company’s solid business momentum, credit profile and growth in recurring revenues are likely to ensure steady cash flow in the upcoming period. Notably, its current cash-flow growth of 20.09% compares favorably with the 13.66% increase estimated for the industry. Furthermore, CBRE Group’s return on equity is 24.14% compared with the industry average of around 3.31%. This shows that the company reinvests more efficiently than the industry.
Estimate revisions: The upward trend in earnings estimate revisions for the current year indicates a favorable outlook for the company. In fact, the Zacks Consensus Estimate for 2019 earnings per share has been revised 1.4% upward in a month’s time. Given its progress on fundamentals and positive estimate revisions, the stock is likely to keep performing well in the quarters ahead.
Other Key Picks
Other top-ranked stocks in the real estate industry include FirstService Corporation (FSV - Free Report) , Jones Lang LaSalle Incorporated (JLL - Free Report) and Invitation Home Inc. (INVH - Free Report) . While FirstService and Jones Lang LaSalle currently flaunt a Zacks Rank of 1 (Strong Buy), Invitation Home carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
FirstService Corporation’s Zacks Consensus Estimate for 2019 earnings has moved 6% north to $3.18 in a month’s time.
Jones Lang LaSalle’s earnings estimates for the current year have climbed 4.2% in a month’s time to $12.13.
The Zacks Consensus Estimate for Invitation Home’s 2019 earnings has moved up marginally to $1.27 over the past week.
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