On Sep 5, 2013, we downgraded our long-term recommendation on Jones Lang LaSalle Inc. (JLL) to Underperform from Neutral based on lower-than-expected second-quarter 2013 results, stressed environment along its operating footprint and leasing revenue declines in China, India, and Australia.
Why the Downgrade?
While the economic conditions are improving in the U.S, transaction volumes are yet to reach the pre-recession peak levels. Also, the cautious attitude of investors is limiting the demand for opportunistic or speculative products.
Structural and political issues have slowed down the pace of development in certain Asian economies, such as China and India. Moreover, the confidence on the European market is yet to be reinstated. Alongside, the cut-throat competitive environment and exposure to unfavorable foreign currency movements remain plausible concerns.
Moreover, Jones Lang posted a negative earnings surprise of 18.4% in the second quarter of 2013. The company reported adjusted earnings of $1.15 per share, substantially missing the Zacks Consensus Estimate of $1.41 per share due to higher expenses. Also, the company experienced leasing revenue declines in China, India and Australia.
Therefore, we believe with the tepid economic recovery, revenue headwinds in the Asian markets and competitive pressure, it would be wise to avoid the stock currently.
Over the last 30 days, the Zacks Consensus Estimates for 2013 and 2014 remained unchanged at $5.93 and $7.03 per share. However, the Zacks Consensus Estimate for 2013 FFO per share moved south 6.6% and 4.0% over the last 60 days. The stock currently has a Zacks Rank #5 (Strong Sell).
Other Stocks to Consider
Other stocks in the same industry that are performing better and are worth a look in the same industry include FirstService Corp. (FSRV), that carries a Zacks Rank #1 (Strong Buy) as well as CBRE Group, Inc. (CBG) and HFF Inc. (HF), both carrying a Zacks Rank #2 (Buy).
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