CBRE Group Inc. CBRE offers a broad range of real estate products and services, and has extensive knowledge of domestic and international real estate markets. The company’s market-leading position will help it to capitalize on commercial real estate tailwinds.
In June, the company announced the acquisition of procurement and facilities management solutions provider — FacilitySource, LLC — from Warburg Pincus. The company has shelled out approximately $290 million in cash for the buyout, which is expected to considerably boost the delivery of integrated solutions to occupier clients. Moreover, CBRE Group struck a deal to acquire a majority stake in Israel-based facilities management provider, Ramot Group.
This Zacks Rank #2 (Buy) stock has gained 7.5% in the past six months compared with its industry’s 3% rally. The stock is likely to gain further in the near term on a number of favorable factors. Also, the current-quarter earnings estimate revision trend is pretty decent.
What Makes It a Solid Choice?
Market-Leading Position: As the largest commercial real estate services and investment firm (based on 2017 revenues), CBRE Group has a robust scale. It is among the few companies offering a full suite of services to multinational 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 is expected to continue to gain from the trend. Moreover, strategic reinvestment in its business, specifically on the technology front, is expected to set CBRE Group apart from its peers.
The company has seen 17.5% EPS growth in the last three to five years compared with the industry’s 1.7%. Moreover, the projected 2018 EPS growth rate is around 15%.
Recurring Revenue Model: CBRE Group has opted for a better-balanced and more resilient business model by shifting the revenue mix toward more contractual sources and leasing. Contractual revenues and leasing, largely recurring over time, constituted 74% of total fee revenues in 2017 compared with 61% in 2006. This makes the company resilient to market disruptions and positions it well to achieve both top and bottom-line growth even despite capital market headwinds.
In fact, CBRE Group’s projected sales growth of 40.7% for 2018 compares favorably with the breakeven estimated for the industry.
Flourishing Occupier Outsourcing Business: Occupiers of real estate are increasingly opting for outsourcing and in doing so, they depend 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 with occupier outsourcing capabilities on a global scale, CBRE Group is well poised to capitalize on the favorable trend.
In fact, growth was broad-based with 33 new, 36 expansions and 27 renewal contracts in first-quarter 2018. International contract activity was solid in the quarter with the outsourcing pipeline at an all-time high. Further, the company continues to achieve diversification in terms of client-industry mix.
Cash Flow Growth: CBRE Group saw 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 9.3% increase estimated for the industry.
Superior ROE: CBRE Group’s return on equity is 24.2%, compared with the industry’s average of around 5%. This shows that the company reinvests more efficiently compared to the industry.
Other Stocks to Consider
Investors can also consider other top-ranked stocks from the same space like Henderson Land Development Company Limited HLDCY, Jones Lang LaSalle Incorporated JLL and Vonovia SE VONOY. All the stocks carry a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Henderson Land Development Company’s Zacks Consensus Estimate for 2018 earnings has remained stable at 44 cents over the past month.
Jones Lang LaSalle’s Zacks Consensus Estimate for current-year earnings has risen 1.4% to $10.37 in a month’s time.
Vonovia’s Zacks Consensus Estimate for 2018 earnings moved up 0.8% to $1.19 in two months’ time.
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