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Should Investors Retain CBRE Group (CBRE) Stock for Now?
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CBRE Group’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 enjoy a robust scale. A market-leading position gives it a competitive edge in navigating through any challenging situations and capitalizing on compelling opportunities. Our estimate indicates the company’s total revenues to increase 10.4% and 12.7% 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 develop and deliver superior analytical, research and client service tools to meet diverse client needs.
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 (“GWS”) segment is well-placed to benefit. In the first quarter of 2024, the company’s GWS segment delivered double-digit net revenue growth.
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 11.3% for the segment’s total revenues in 2024.
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.
Recently, CBRE Group announced the acquisition of Direct Line Global, a premier provider of mission-critical data center infrastructure, from a private equity firm, Guardian Capital. The acquisition is expected to be immediately accretive to CBRE’s core earnings per share (EPS).
In the first quarter of 2024, the company acquired J&J Worldwide Services for a total cash and non-cash consideration of $820 million. The move was in line with its efforts to expand its capabilities in the public sector. In 2023, CBRE Group completed 16 in-fill business acquisitions for approximately $311.5 million in cash and non-cash consideration.
On the balance sheet front, CBRE had $3.9 billion in total liquidity as of Mar 31, 2024. The company’s net leverage ratio was 1.47 as of the same date. This is significantly less than CBRE’s primary debt covenant of 4.25X. With ample financial flexibility, CBRE is well-positioned to capitalize on growth opportunities.
Shares of this Zacks Rank #3 (Hold) company have rallied 18.3% in the past year, in line with the industry’s increase.
Image Source: Zacks Investment Research
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 amid 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 adversely impacted CBRE Group’s transaction-based businesses in 2023, and this business is likely to remain choppy in the near term.
Stocks to Consider
Some better-ranked stocks from the real estate operations sector are Kennedy-Wilson (KW - Free Report) and Jones Lang LaSalle (JLL - Free Report) .
The Zacks Consensus Estimate for KW’s current-year EPS has moved significantly northward in the past two months to 1 cent. Currently, the company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for JLL’s 2024 EPS has increased marginally upward over the past month to $12.22. The company currently carries a Zacks Rank #2 (Buy).
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Should Investors Retain CBRE Group (CBRE) Stock for Now?
CBRE Group’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 enjoy a robust scale. A market-leading position gives it a competitive edge in navigating through any challenging situations and capitalizing on compelling opportunities. Our estimate indicates the company’s total revenues to increase 10.4% and 12.7% 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 develop and deliver superior analytical, research and client service tools to meet diverse client needs.
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 (“GWS”) segment is well-placed to benefit. In the first quarter of 2024, the company’s GWS segment delivered double-digit net revenue growth.
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 11.3% for the segment’s total revenues in 2024.
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.
Recently, CBRE Group announced the acquisition of Direct Line Global, a premier provider of mission-critical data center infrastructure, from a private equity firm, Guardian Capital. The acquisition is expected to be immediately accretive to CBRE’s core earnings per share (EPS).
In the first quarter of 2024, the company acquired J&J Worldwide Services for a total cash and non-cash consideration of $820 million. The move was in line with its efforts to expand its capabilities in the public sector. In 2023, CBRE Group completed 16 in-fill business acquisitions for approximately $311.5 million in cash and non-cash consideration.
On the balance sheet front, CBRE had $3.9 billion in total liquidity as of Mar 31, 2024. The company’s net leverage ratio was 1.47 as of the same date. This is significantly less than CBRE’s primary debt covenant of 4.25X. With ample financial flexibility, CBRE is well-positioned to capitalize on growth opportunities.
Shares of this Zacks Rank #3 (Hold) company have rallied 18.3% in the past year, in line with the industry’s increase.
Image Source: Zacks Investment Research
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 amid 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 adversely impacted CBRE Group’s transaction-based businesses in 2023, and this business is likely to remain choppy in the near term.
Stocks to Consider
Some better-ranked stocks from the real estate operations sector are Kennedy-Wilson (KW - Free Report) and Jones Lang LaSalle (JLL - Free Report) .
The Zacks Consensus Estimate for KW’s current-year EPS has moved significantly northward in the past two months to 1 cent. Currently, the company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for JLL’s 2024 EPS has increased marginally upward over the past month to $12.22. The company currently carries a Zacks Rank #2 (Buy).