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3 Stocks to Buy on the Real Estate Operations Industry's Recovery
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The Zacks Real Estate Operations industry constituents are poised to benefit from the increased adoption of outsourced real estate services and emerging trends. Strategic technology investments provide a competitive edge. Companies like Jones Lang LaSalle Incorporated (JLL - Free Report) , Kennedy-Wilson Holdings, Inc. (KW - Free Report) and Legacy Housing Corporation (LEGH - Free Report) are set to benefit from these positive trends.
Despite the positives, the industry faces challenges such as high interest rates, macroeconomic uncertainty and geopolitical tensions. Stricter lending norms limit access to credit, raising borrowing costs and slowing transaction activity. Clients are cautious due to high rates, delaying transactions and seeking thorough price discovery.
About the Industry
The Zacks Real Estate Operations industry comprises companies that provide leasing, property management, investment management, valuation, development services, facility management, project management, transaction and consulting services, among others. However, real estate investment trusts or REITs are excluded from this group. Economic trends and government policies impact the real estate market (global and regional), which determines the industry’s performance. Economic activity, employment growth, office-based employment, interest-rate levels, costs and availability of credit, tax and regulatory policies and the geopolitical environment are the major factors shaping the real estate market’s fate. Also, pandemic-induced public health challenges and geopolitical issues have affected property sales and the leasing lines of businesses.
What's Shaping the Real Estate Operations Industry's Future?
Outsourcing of Real Estate Needs to Remain Strong: Real estate occupiers, including corporations, public sector entities, healthcare providers and those in finance, industry, life sciences and technology, are increasingly opting to outsource their real estate needs. They are relying on third-party real estate experts to enhance execution and efficiency. Organizations are seeking strategic advice to reimagine their workplaces and workstyles to foster culture, attract talent and improve performance. These trends are creating opportunities for participants in the real estate services sector. Major players in the industry are capitalizing on this shift, securing new clients and expanding relationships with existing ones. Also, companies in this industry continue to prioritize investments in technology as it consistently boosts efficiency, enhances client services and supports market share growth.
Demand Across Certain Asset Classes Offers Growth Opportunities: Demand for certain asset categories, such as data centers and healthcare, is likely to remain strong in the near term and boost the transaction of such asset types. In the digital era, there is a high demand for interconnected data center space. Enterprises and service providers are increasingly integrating artificial intelligence into their strategies and offerings, advancing their digital transformation agendas. This trend will enhance growth prospects for data centers. Moreover, the anticipated growth in the senior citizen population and increased healthcare spending by this age group, along with pent-up demand for medical services, bode well for healthcare real estate’s property demand. Additionally, office leasing continues to benefit from the progress on return-to-office plans.
High Interest Rates & Macroeconomic Uncertainty Affect the Industry: In a volatile climate with persistently high interest rates and geopolitical concerns, customers are concentrating on cost controls and postponing their leasing decisions. Capital markets have slowed due to restrictive underwriting assumptions and high debt costs in a high-interest-rate environment. This situation, where borrowing is scarce and expensive, is impacting transaction activities. Clients are showing less urgency in making new commitments and are waiting for further price discovery, consequently leading to prolonged transaction completion times. Also, this is resulting in a decline in the average deal size, highlighting the challenges of closing large deals. Though a recovery is expected in the later quarters, this volatility, elevated geopolitical tensions and outlook for interest rates will continue to weigh on investor sentiments and affect property sales and leasing activities.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Real Estate Operations industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #93, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates robust near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the upward earnings per share outlook for the constituent companies in aggregate. Looking at the aggregate earnings per share estimate revisions, it appears that, of late, analysts are gaining confidence in this group’s growth potential. Over the past year, the industry’s earnings per share estimates for 2024 and 2025 have moved 7.9% and 4.9% north, respectively.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms the Sector & the S&P 500
The Zacks Real Estate Operations industry has underperformed the broader Zacks Finance sector and the S&P 500 composite over the past year.
The industry has advanced 14.8% during this period compared with the S&P 500’s growth of 25.2% and the broader Finance sector’s rise of 21.9%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-EPS, which is a commonly used multiple for valuing Real Estate Operations stocks, we see that the industry is currently trading at 13.96X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 21.54X. The industry is trading below the Finance sector’s forward 12-month P/E of 14.37X. This is shown in the chart below.
Forward 12-Month Price-To-Earnings Ratio
Over the last five years, the industry has traded as high as 32.22X and as low as 11.35X, with a median of 16.96X.
3 Real Estate Operation Stocks to Bet On
Kennedy Wilson: Headquartered in Beverly Hills, CA, Kennedy Wilson is a global real estate investment company. KW is engaged in the ownership, operation and investment in real estate on its own and through its investment management platform in the United States, the United Kingdom and Ireland. The company is expected to benefit from the continued growth of its investment management business and healthy demand for its high-quality multifamily and commercial portfolio.
Kennedy Wilson currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for 2024 earnings per share has moved significantly northward to one cent from a loss per share projection of $1.36 over the past two months. The stock has risen 12.1% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
Legacy Housing Corporation: Based in Bedford, TX, Legacy Housing builds, sells and finances manufactured homes distributed through independent retailers and company-owned stores, as well as directly to manufactured housing communities. With current operations focused on the southwest and southeast of the United States, Legacy is poised to benefit from its focus on offering quality housing at affordable rates. The company’s profitability is expected to be supported by improvement in sales.
LEGH Holdings sports a Zacks Rank #1 at present. The Zacks Consensus Estimate for the company’s 2024 EPS has moved 36% north over the past two months to $2.34. This also suggests 7.8% growth year over year. LEGH shares have risen 3.9% over the past three months.
Jones Lang LaSalle Incorporated: Headquartered in Chicago, IL, Jones Lang LaSalle offers commercial real estate and investment management services. The company’s diverse range of products and service offerings, along with its strategic investments, give it a strong footing. Also, its superior client services and strategic investment in technology and innovation are expected to boost market share and win relationships.
Jones Lang LaSalle has a Zacks Rank of 2 (Buy) at present. The Zacks Consensus Estimate for 2024 EPS has been revised 1.8% upward over the past month to $12.36. This suggests a 67.03% increase year over year. The company’s shares have appreciated 6% in the past six months.
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3 Stocks to Buy on the Real Estate Operations Industry's Recovery
The Zacks Real Estate Operations industry constituents are poised to benefit from the increased adoption of outsourced real estate services and emerging trends. Strategic technology investments provide a competitive edge. Companies like Jones Lang LaSalle Incorporated (JLL - Free Report) , Kennedy-Wilson Holdings, Inc. (KW - Free Report) and Legacy Housing Corporation (LEGH - Free Report) are set to benefit from these positive trends.
Despite the positives, the industry faces challenges such as high interest rates, macroeconomic uncertainty and geopolitical tensions. Stricter lending norms limit access to credit, raising borrowing costs and slowing transaction activity. Clients are cautious due to high rates, delaying transactions and seeking thorough price discovery.
About the Industry
The Zacks Real Estate Operations industry comprises companies that provide leasing, property management, investment management, valuation, development services, facility management, project management, transaction and consulting services, among others. However, real estate investment trusts or REITs are excluded from this group. Economic trends and government policies impact the real estate market (global and regional), which determines the industry’s performance. Economic activity, employment growth, office-based employment, interest-rate levels, costs and availability of credit, tax and regulatory policies and the geopolitical environment are the major factors shaping the real estate market’s fate. Also, pandemic-induced public health challenges and geopolitical issues have affected property sales and the leasing lines of businesses.
What's Shaping the Real Estate Operations Industry's Future?
Outsourcing of Real Estate Needs to Remain Strong: Real estate occupiers, including corporations, public sector entities, healthcare providers and those in finance, industry, life sciences and technology, are increasingly opting to outsource their real estate needs. They are relying on third-party real estate experts to enhance execution and efficiency. Organizations are seeking strategic advice to reimagine their workplaces and workstyles to foster culture, attract talent and improve performance. These trends are creating opportunities for participants in the real estate services sector. Major players in the industry are capitalizing on this shift, securing new clients and expanding relationships with existing ones. Also, companies in this industry continue to prioritize investments in technology as it consistently boosts efficiency, enhances client services and supports market share growth.
Demand Across Certain Asset Classes Offers Growth Opportunities: Demand for certain asset categories, such as data centers and healthcare, is likely to remain strong in the near term and boost the transaction of such asset types. In the digital era, there is a high demand for interconnected data center space. Enterprises and service providers are increasingly integrating artificial intelligence into their strategies and offerings, advancing their digital transformation agendas. This trend will enhance growth prospects for data centers. Moreover, the anticipated growth in the senior citizen population and increased healthcare spending by this age group, along with pent-up demand for medical services, bode well for healthcare real estate’s property demand. Additionally, office leasing continues to benefit from the progress on return-to-office plans.
High Interest Rates & Macroeconomic Uncertainty Affect the Industry: In a volatile climate with persistently high interest rates and geopolitical concerns, customers are concentrating on cost controls and postponing their leasing decisions. Capital markets have slowed due to restrictive underwriting assumptions and high debt costs in a high-interest-rate environment. This situation, where borrowing is scarce and expensive, is impacting transaction activities. Clients are showing less urgency in making new commitments and are waiting for further price discovery, consequently leading to prolonged transaction completion times. Also, this is resulting in a decline in the average deal size, highlighting the challenges of closing large deals. Though a recovery is expected in the later quarters, this volatility, elevated geopolitical tensions and outlook for interest rates will continue to weigh on investor sentiments and affect property sales and leasing activities.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Real Estate Operations industry is housed within the broader Zacks Finance sector. It carries a Zacks Industry Rank #93, which places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates robust near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the upward earnings per share outlook for the constituent companies in aggregate. Looking at the aggregate earnings per share estimate revisions, it appears that, of late, analysts are gaining confidence in this group’s growth potential. Over the past year, the industry’s earnings per share estimates for 2024 and 2025 have moved 7.9% and 4.9% north, respectively.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Underperforms the Sector & the S&P 500
The Zacks Real Estate Operations industry has underperformed the broader Zacks Finance sector and the S&P 500 composite over the past year.
The industry has advanced 14.8% during this period compared with the S&P 500’s growth of 25.2% and the broader Finance sector’s rise of 21.9%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-EPS, which is a commonly used multiple for valuing Real Estate Operations stocks, we see that the industry is currently trading at 13.96X compared with the S&P 500’s forward 12-month price-to-earnings (P/E) of 21.54X. The industry is trading below the Finance sector’s forward 12-month P/E of 14.37X. This is shown in the chart below.
Forward 12-Month Price-To-Earnings Ratio
Over the last five years, the industry has traded as high as 32.22X and as low as 11.35X, with a median of 16.96X.
3 Real Estate Operation Stocks to Bet On
Kennedy Wilson: Headquartered in Beverly Hills, CA, Kennedy Wilson is a global real estate investment company. KW is engaged in the ownership, operation and investment in real estate on its own and through its investment management platform in the United States, the United Kingdom and Ireland. The company is expected to benefit from the continued growth of its investment management business and healthy demand for its high-quality multifamily and commercial portfolio.
Kennedy Wilson currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for 2024 earnings per share has moved significantly northward to one cent from a loss per share projection of $1.36 over the past two months. The stock has risen 12.1% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
Legacy Housing Corporation: Based in Bedford, TX, Legacy Housing builds, sells and finances manufactured homes distributed through independent retailers and company-owned stores, as well as directly to manufactured housing communities. With current operations focused on the southwest and southeast of the United States, Legacy is poised to benefit from its focus on offering quality housing at affordable rates. The company’s profitability is expected to be supported by improvement in sales.
LEGH Holdings sports a Zacks Rank #1 at present. The Zacks Consensus Estimate for the company’s 2024 EPS has moved 36% north over the past two months to $2.34. This also suggests 7.8% growth year over year. LEGH shares have risen 3.9% over the past three months.
Jones Lang LaSalle Incorporated: Headquartered in Chicago, IL, Jones Lang LaSalle offers commercial real estate and investment management services. The company’s diverse range of products and service offerings, along with its strategic investments, give it a strong footing. Also, its superior client services and strategic investment in technology and innovation are expected to boost market share and win relationships.
Jones Lang LaSalle has a Zacks Rank of 2 (Buy) at present. The Zacks Consensus Estimate for 2024 EPS has been revised 1.8% upward over the past month to $12.36. This suggests a 67.03% increase year over year. The company’s shares have appreciated 6% in the past six months.