2008’s epic real estate calamity, the falling dominos of deep recessions, and fear all take time to leave the forefront of investor minds.
Though ‘ground zero’ was subprime home mortgages, the commercial real estate industry fell into shock. Specific niches rebounded first. In today’s real estate markets, that crisis is a disappearing past. The most broad-based commercial development companies are firing on all pistons.
The 20-company strong Real Estate Operations industry group inside Zacks Industry Ranks is heating up. This industry group ranked #49 out of 265 groups this week, up +29 positions in the last week. There are 16 positive analyst estimate revisions to 11 negative revisions. Average EPS surprises have been +2%.
Below are descriptions on two of the largest U.S.-based Real Estate Operations firms. Their shares bumped up to a Zacks Rank #2 (Buy) from a #3 (Hold) rating in the last week. Consensus brokerage estimates peg their future share prices well above current prices.
Look to large real estate company share price momentum first. Diversification keeps an investor exposed to EPS and revenue upside, and limits the downside. To make this case, the biggest, most diversified companies have delivered the largest commercial real estate EPS surprises, quarter-after-quarter. Their quarterly earnings surprise have been in double-digits, not single digits.
For another year or two, there’s a solid bet to be made on their business model.
CBRE Group Inc. (CBG) is a Zacks #2 Rank real estate stock.
Last quarter, the quarterly earnings surprise was a nice +11%. There have been five consecutive quarterly earnings surprises to entice investors. The company reports earnings again on February 2, 2015.
As for valuation, this too looks favorable. The PEG ratio is 1.44, while the industry group PEGB is 2.41. Share price momentum is heading in the right direction too: up. CBG stock traded at a $40 high back in late 2007, before the financial crisis. It prices at $33 now.
Headquartered in LA, CBRE Group, Inc. is a commercial real estate services and investment firm, offering a wide range of services to tenants, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial real estate.
Services include valuation, tenant representation, occupier and property/agency leasing, property sales, commercial mortgage origination and servicing, and proprietary research.
CBRE reports operating results in 5 segments: the Americas, EMEA (Europe, Middle East and Africa), Asia-Pacific, Global Investment Management and Development Services.
Jones Lang LaSalle (JLL - Analyst Report) is another Zacks #2 Rank real estate stock.
The most recent quarterly earnings surprise was a whopping +30%. There have been four upside surprises over the last five quarters. The company reports again on January 27, 2015.
As for valuation, this too looks favorable. The PEG ratio is 1.25, while the industry group is 2.41. Just like its LA-based competitor, Chicago-based Jones Lang's share price momentum is heading in the right direction. JLL stock trades at a hefty $141 per share. This recent share price is +18% above the $115 high in late 2007.
Jones Lang LaSalle is a leading full-service real estate firm that provides corporate, financial and investment management services to corporations and other real estate owners, users and investor worldwide.
A broad real estate product range, and extensive knowledge of domestic and international real estate markets enable the company to operate as a single-source provider of real estate solutions. With over 200 corporate offices across the globe, JLL operates in 75 countries. JFF divides its business into two primary segments: Real Estate Services (RES) and Investment Management (IM).
Much like CBRE in Los Angeles, the RES division of Jones Lang LaSalle is subdivided into three regions: the Americas, EMEA and Asia Pacific.
With a U.S. jobs-driven real estate swing underway -- and share valuations not out of control -- there is more cyclical trading time to play for more upside.
by John Blank
November 19, 2014
Zacks Industry Rank Analysis
Commercial Real Estate: More Room
to Run
10
Improving Labor Market Conditions Fuel Strong Third Quarter Net Absorption and Price Gains