CBRE Stock Study (1-21-23)

I recently did a stock study on CBRE Group, Inc. (CBRE) with a closing price of $84.29.

Value Line writes:

     > CBRE Group, Inc. is a worldwide commercial real estate firm, offering
     > services to occupiers, owners, lenders, and investors in the office,
     > retail, industrial, and multi-family segments of the market. Provides
     > facilities management, leasing, property sales, mortgage origination,
     > investment management, and valuation services.

This large-sized company has grown both sales and revenue at an annualized rate of 18.8% for the last 10 years. Lines are mostly up, straight, and parallel except a temporary drop in ’20 EPS before rebounding to the trendline in ’21. PTPM has trended flat over the last 10 years with a 5-year average of 6.6%; this is on par with both peer (stated as JLL and BEKE) and industry averages.

ROE has been consistent over the last 10 years and ahead of peer and industry averages. The 5-year average is 19.4% (21.5% without 2020 downside outlier). Debt-to-Capital has fallen over the last 10 years from 71% to 33% and is slightly higher than peer and industry averages. The last-5-year average is 37.8%. Interest Coverage is a formidable 25.

I assume long-term annualized sales growth of 5% based on the following:

• CNN Business projects 10.5% YOY and 6.6% per year for ’22 and ’21-’23, respectively (based on 10 analysts).
• YF projects YOY 10.7% and 3.5% for ’22 and ’23, respectively (8 analysts).
• Zacks projects YOY growth of 10.9% and 4.6% for ’22 and ’23, respectively (3).
• Value Line projects 4.8% annualized growth from ’21-’26.
• Morningstar offers a 2-year ACE of 7% per year.

I assume long-term annualized EPS growth of 5% based on the following:

• CNN Business projects 4.5% YOY growth and 0.8% per year contraction for ’22 and ’21-’23, respectively (based on 10 analysts).
• MarketWatch projects contraction of 1.6% per year and growth of 4.5% per year for ’21-’23 and ’21-’24, respectively (10 analysts).
• Nasdaq.com projects 6% and 10.7% growth per year for ’22-’24 and ’22-’25, respectively [4, 4, and 1 analyst(s) for ’22, ’24, and ’25].
• YF projects 5.1% growth for ’22, 6.1% contraction for ’23, and 11% annualized growth for the next five years (8).
• Zacks projects YOY contraction of 4.1% and 2.9% for ’22 and ’23, respectively (4).
• Value Line projects 2.8% growth per year from ’21-’26 (statistical array) while also projecting 8.5% growth per year from ’19-’21 through ’25-’27 (left margin).
• Morningstar offers a long-term growth estimate of 6.1% per year.

I’m using a forecast High P/E of 16. High P/E has ranged from 16.3 (’18) to 30.5 (’20) over the last 10 years. Excluding the latter as an upside outlier, the last four years have averaged 18.7 and the trend has been down.

I’m using a forecast Low P/E of 10. Low P/E has ranged from 10 (’19) to 21 (’13) over the last 10 years. The trend has been down with a last-5-year average of 12.1.

I’m sticking with default and using a Low Stock Price Forecast of $60. This is ~29% below the previous closing price and near the ’21 low.

All this results in an U/D ratio of 1.7, which makes CBRE a Hold. Total Annualized Return (TAR) is 7%. PAR (using projected average P/E rather than High P/E) is 2.6%, which is lower than I seek in a long-term stock investment.

To add more context behind this study, I look at Member Sentiment (MS). Based on 97 studies over the past 90 days, averages for projected sales growth, projected EPS growth, High P/E, and Low P/E are 7.9%, 8.5%, 20.2, and 12.8, respectively. I’m lower on all inputs. This represents a margin of safety that increases the probability TAR may be achieved.

I still want TAR to be higher, though. I am looking for $76/share (10% discount to today’s price) as an entry point for this stock.