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Should Investors Retain CBRE Group (CBRE) Stock for Now?
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CBRE Group, Inc.’s (CBRE - Free Report) wide array of real estate products and service offerings, and healthy outsourcing business positions it well for growth. However, persistent macroeconomic uncertainty and its adverse impact on commercial real estate transactions raise concerns for the company. High interest rates add to its woes.
What’s Aiding CBRE?
CBRE, the largest commercial real estate services and investment firm (based on 2023 revenues), holds extensive knowledge of domestic and international real estate markets. This helps it to enjoy a robust scale. Its market-leading position is likely to give it a competitive edge in navigating through the current challenging situations and capitalize on compelling opportunities. Our estimate indicates the company’s total revenues to increase 8.4% and 8.9% year over year in 2024 and 2025, respectively.
Over the past few years, CBRE has opted for a better-balanced and more resilient business model. In pursuit of this, the company has shifted toward a more diversified and contractual revenue base, which enables it to tide over market disruptions and other economic uncertainties. The company’s solid technology platform helps it to develop and deliver superior analytical, research and client service tools to meet diverse client needs. For 2024, we estimate a year-over-year increase of 13.4% in its adjusted EBITDA.
With occupiers of real estate increasingly opting for outsourcing and relying on the expertise of third-party real estate specialists to optimize their operations, CBRE Group’s Global Workplace Solutions segment is well-placed to benefit. During the fourth quarter of 2023, the company had record pipeline conversion to new GWS contracts with a balanced mix of new clients and existing client expansions.
Further, with significant growth from large first-generation outsourcers, the GWS business pipeline remains elevated, offering CBRE Group scope for growth. Our estimate indicates a year-over-year rise of 7.4% for the segment’s total revenues in 2023.
To widen its global reach and expand and reinforce its service offerings, CBRE Group has been focusing on strategic in-fill acquisitions by acquiring regional or specialty firms. In 2023, the company completed 16 in-fill business acquisitions for approximately $311.5 million in cash and non-cash consideration. These comprised nine in the Advisory Services segment, six in the Global Workplace Solutions segment and one in the Real Estate Investments segment.
In February 2023, the company acquired J&J Worldwide Services. The move is in line with its efforts to expand its capabilities in the public sector.
On the balance sheet front, CBRE had $4.9 billion in total liquidity as of Dec 31, 2023. The company’s net leverage ratio was 0.71 as of the same date, significantly less than its primary debt covenant of 4.25. With ample financial flexibility, CBRE is well-positioned to capitalize on growth opportunities.
What’s Hurting CBRE?
CBRE Group’s Advisory Services segment, mainly property sales and leasing, had been widely affected by the pandemic. Though things have improved from the initial days of the health crisis, the global economic recovery has been uneven, with persistent uncertainty and geopolitical unrest.
With challenging capital market conditions and high interest rates, many capital sources have tightened their underwriting standards, reducing credit availability. Under these circumstances, investors have either paused or reconsidered their buying decisions, causing a delay in the closing timeline for transactions. Also, a decline in both volume and average deal size has hurt the company’s leasing business.
Collectively, these factors have adversely impacted not only CBRE Group’s transaction-based businesses but also those of other real estate operation companies, including Jones Lang LaSalle (JLL - Free Report) . Give the continuation of the uncertain macroeconomic environment and elevated interest rate, any significant turnaround is unlikely in the near term for both this business of CBRE and Jones Lang LaSalle. For CBRE, we project adjusted EPS to decline 26.9% on a year-over-year basis in the first-quarter 2024.
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Should Investors Retain CBRE Group (CBRE) Stock for Now?
CBRE Group, Inc.’s (CBRE - Free Report) wide array of real estate products and service offerings, and healthy outsourcing business positions it well for growth. However, persistent macroeconomic uncertainty and its adverse impact on commercial real estate transactions raise concerns for the company. High interest rates add to its woes.
What’s Aiding CBRE?
CBRE, the largest commercial real estate services and investment firm (based on 2023 revenues), holds extensive knowledge of domestic and international real estate markets. This helps it to enjoy a robust scale. Its market-leading position is likely to give it a competitive edge in navigating through the current challenging situations and capitalize on compelling opportunities. Our estimate indicates the company’s total revenues to increase 8.4% and 8.9% year over year in 2024 and 2025, respectively.
Over the past few years, CBRE has opted for a better-balanced and more resilient business model. In pursuit of this, the company has shifted toward a more diversified and contractual revenue base, which enables it to tide over market disruptions and other economic uncertainties. The company’s solid technology platform helps it to develop and deliver superior analytical, research and client service tools to meet diverse client needs. For 2024, we estimate a year-over-year increase of 13.4% in its adjusted EBITDA.
With occupiers of real estate increasingly opting for outsourcing and relying on the expertise of third-party real estate specialists to optimize their operations, CBRE Group’s Global Workplace Solutions segment is well-placed to benefit. During the fourth quarter of 2023, the company had record pipeline conversion to new GWS contracts with a balanced mix of new clients and existing client expansions.
Further, with significant growth from large first-generation outsourcers, the GWS business pipeline remains elevated, offering CBRE Group scope for growth. Our estimate indicates a year-over-year rise of 7.4% for the segment’s total revenues in 2023.
To widen its global reach and expand and reinforce its service offerings, CBRE Group has been focusing on strategic in-fill acquisitions by acquiring regional or specialty firms. In 2023, the company completed 16 in-fill business acquisitions for approximately $311.5 million in cash and non-cash consideration. These comprised nine in the Advisory Services segment, six in the Global Workplace Solutions segment and one in the Real Estate Investments segment.
In February 2023, the company acquired J&J Worldwide Services. The move is in line with its efforts to expand its capabilities in the public sector.
On the balance sheet front, CBRE had $4.9 billion in total liquidity as of Dec 31, 2023. The company’s net leverage ratio was 0.71 as of the same date, significantly less than its primary debt covenant of 4.25. With ample financial flexibility, CBRE is well-positioned to capitalize on growth opportunities.
What’s Hurting CBRE?
CBRE Group’s Advisory Services segment, mainly property sales and leasing, had been widely affected by the pandemic. Though things have improved from the initial days of the health crisis, the global economic recovery has been uneven, with persistent uncertainty and geopolitical unrest.
With challenging capital market conditions and high interest rates, many capital sources have tightened their underwriting standards, reducing credit availability. Under these circumstances, investors have either paused or reconsidered their buying decisions, causing a delay in the closing timeline for transactions. Also, a decline in both volume and average deal size has hurt the company’s leasing business.
Collectively, these factors have adversely impacted not only CBRE Group’s transaction-based businesses but also those of other real estate operation companies, including Jones Lang LaSalle (JLL - Free Report) . Give the continuation of the uncertain macroeconomic environment and elevated interest rate, any significant turnaround is unlikely in the near term for both this business of CBRE and Jones Lang LaSalle. For CBRE, we project adjusted EPS to decline 26.9% on a year-over-year basis in the first-quarter 2024.