Is This Real Estate Giant A Buy?

Marshall is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

CBRE Group (NYSE: CBG) was up over 8% following its earnings announcement. The run comes after the real estate servicing company upped its guidance for 2013, now expecting to generate $1.40 to $1.45 of earnings per share, compared to analysts' estimates of $1.38. But is there still room for the stock to move higher? Given the company's leading market share, it appears so. After missing 3Q earnings estimates by over 20%, the 12% beat was a pleasant surprise. This helped lift full year 2012 earnings to $1.22 per share, compared to $1.03 in 2011.

CBRE's 2012 revenue number was the highest in history and earnings were the highest since 2007. The strong earnings performance is expected to continue, as Wall Street analysts estimate that CBRE will grow EPS 15% annually over the next five years. Over 60% of CBRE's revenues are derived from North American real estate, either servicing or outsourcing, which will be a big part of CBRE's continued success. As the U.S. economy strengthens and credit markets loosen, so strengthens the commercial real estate markets (check out the hedge fund owning CBRE).
 
The other major real estate servicing company is Jones Lang LaSalle (NYSE: JLL)Jones' recently reported fourth quarter earnings results that slightly missed analysts' estimates, posting EPS of $2.60 compared to expectations of $2.61. This is still above the EPS of $2.56 that Jones posted for the same quarter last year. Other minor real estate companies include Kennedy-Wilson Holdings (NYSE: KW)Brookfield Office Properties (NYSE: BPO), and FirstService Corporation (NASDAQ: FSRV)

Kennedy has been on an acquisition binge of late, purchasing a north Hollywood office building and a suite of office buildings throughout the U.K. These positive moves have helped lift Kennedy's stock almost 20% over the last three months, despite missing third quarter results by over 30%. Brookfield manages a number of office properties across North America, with plans to increase exposure to London and Australian markets. The big news of late is that Brookfield's need to find new tenants for its 3.1 million square feet of leases at its World Financial Center in NYC that expire in the fourth quarter of 2013. FirstService operates on both the commercial and retail sides of the market, offering property management services and integrated security systems. The real estate company did miss third quarter earnings by almost 10%, but recently announced plans to acquire Mar West Real Estate, one of the providers of commercial property association management services in the western U.S. While some of these smaller real estate servicing companies are looking to expand their footprint in the U.S. and developed markets, CBRE continues to tap emerging and growing markets, including by acquiring its affiliate company in Vietnam, which is an effort to strengthen its Asian presence.
 
From a valuation standpoint, CBRE is well in line with top competitor Jones Lang and other peers:
 
<table> <tbody> <tr> <td colspan="1" rowspan="1"> </td> <td colspan="1" rowspan="1"><strong>CBRE</strong></td> <td colspan="1" rowspan="1"><strong>Jones Lang</strong></td> <td colspan="1" rowspan="1"><strong>Kennedy-Wilson</strong></td> <td colspan="1" rowspan="1"><strong>Brookfield</strong></td> <td colspan="1" rowspan="1"><strong>First Service</strong></td> </tr> <tr> <td colspan="1" rowspan="1"><strong>Price to Earnings (next year earnings)</strong></td> <td colspan="1" rowspan="1">14.7</td> <td colspan="1" rowspan="1">13.6</td> <td colspan="1" rowspan="1">--</td> <td colspan="1" rowspan="1">20.5</td> <td colspan="1" rowspan="1">15.1</td> </tr> <tr> <td colspan="1" rowspan="1"><strong>Price to Sales</strong></td> <td colspan="1" rowspan="1">1.2</td> <td colspan="1" rowspan="1">1.1</td> <td colspan="1" rowspan="1">11.2</td> <td colspan="1" rowspan="1">3.6</td> <td colspan="1" rowspan="1">0.4</td> </tr> </tbody> </table>
 
Despite its valuation, CBRE is one of the best ways to play the rebounding real estate, with a market cap over double its largest competitor Jones Lang. CBRE also has solid growth prospects, and is expected to grow earnings by 15% annually over the next five years according to Wall Street estimates. With a leading market position and global reach, it appears that CBRE could be an interesting play on commercial real estate. CBRE also has a strong hedge fund presence; ValueACT is CBRE's top hedge fund backer, owning over 31 million shares (check out ValueACT's profile). ValueACT's Jeff Ubben has said this about the real estate giant CBRE: "Between CBRE and Jones, you have no other players that can enter the market, there have been number threes attempted that can't get in, so you have a very big company in CBRE that has a global presence.
 


mhargra has no position in any stocks mentioned. The Motley Fool recommends Jones Lang LaSalle. The Motley Fool owns shares of Jones Lang LaSalle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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