CBRE Stock Study (8-14-23)

Posted by Mark on October 27, 2023 at 06:27 | Last modified: August 14, 2023 12:02

I recently did a stock study on CBRE Group, Inc. (CBRE) with a closing price of $84.53. Previous studies on this stock can be seen here, here, and here.

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.

Over the past decade, this large-size company has grown sales and earnings at annualized rates of 17.8% and 18.0%, respectively. Lines are mostly up, straight, and parallel except for a sales dip in ’20 and EPS dips in both ’20 and ’22. PTPM leads peer and industry averages despite trending down from 7.1% in ’13 to 5.4% in ’22 with a last-5-year mean of 6.1%.

Also over the past decade, ROE leads peer and industry averages while ranging from 16.8% in ’22 to 22.9% in ’19 with a last-5-year mean of 21.1% (downside outlier of 11.4% in ’20 excluded). Debt-to-Capital is lower than peer and industry averages since ’19 with a last-5-year mean of 35.6%.

Value Line gives a Financial Strength rating of A along with Interest Coverage over 25.0. M* assigns a “Standard” rating for Capital Allocation and reports Quick Ratio of 1.03.

With regard to sales growth:

• CNN Business projects 2.3% YOY and 5.4% per year for ’23 and ’22-’24, respectively (based on 7 analysts).
• YF projects YOY 3.0% and 6.6% for ’23 and ’24, respectively (3 analysts).
• Zacks projects YOY growth of 3.3% and 8.5% for ’23 and ’24, respectively (3).
• Value Line projects 2.6% annualized growth from ’22-’27.
• CFRA projects 1.3% YOY and 4.2% for ’23 and ’22-’24, respectively.
• M* offers a 2-year ACE of 4.0% per year along with its own analyst estimate of 5.0% per year for the next 10 years.

I am forecasting below the range at 2.0% per year.

With regard to EPS growth:

• CNN Business reports ACE of a 17.0% YOY contraction and 0.2% growth per year for ’23 and ’22-’24, respectively (based on 7 analysts), along with 5-year annualized growth of 11.0%.
• MarketWatch projects annualized growth of 0.8% and 6.4% for ’22-’24 and ’22-’25, respectively (10 analysts).
• Nasdaq.com projects annualized growth of 22.9% and 20.8% for ’23-’25 and ’23-’26, respectively [4, 3, and 1 analyst(s) for ’23, ’25, and ’26].
• YF projects YOY 25.1% contraction and 25.1% growth for ’23 and ’24, respectively (6), along with 11.0% annualized growth for the next five years.
• Zacks projects YOY 21.8% contraction and 26.1% growth for ’23 and ’24, respectively (4).
• Value Line projects 2.7% annualized growth from ’22-’27.
• CFRA projects contraction of 23.1% YOY and 4.2% per year for ’23 and ’22-’24 along with 3-year CAGR of -4.0%.
• M* projects long-term growth of 9.3% per year.

I am forecasting near the bottom of the long-term-estimate range (mean of four: 8.5%). While this is conservative, I am using ’22 EPS of $4.29/share as the initial value rather than 2023 Q2 EPS of $2.64 (annualized).

My Forecast High P/E is 18.0. Over the past decade, high P/E ranges from 16.3 (’18/’19) to 30.5 in ’20 with a last-5-year mean of 21.8. The last-5-year-mean average P/E is 17.1. I am forecasting near the bottom of the range (only ’18/’19 are lower).

My Forecast Low P/E is 11.0. Over the past decade, low P/E ranges from 10.0 in ’19 to 21.0 in ’13 with a last-5-year mean of 12.3. I am forecasting near the bottom of the range [only ’19 and ’21 (10.9) are lower].

My Low Stock Price Forecast (LSPF) of $47.20 is default based on $4.29/share initial value. This is 44.2% less than the previous closing price and 28.8% less than the 52-week low.

These inputs land CBRE in the SELL zone with a U/D ratio of 0.1. Total Annualized Return (TAR) is 1.2%.

PAR (using Forecast Average—not High—P/E) is -3.1%, which is unacceptable. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on the 1.2% but even that is much lower than the current yield on T-bills.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 57 studies done in the past 90 days (my study along with 11 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E, are 7.0%, 9.3%, 21.0, and 12.5. I am lower across the board. Value Line projects a future average annual P/E of 15.0, which is lower than MS (16.8) and just higher than mine (14.5).

MS high / low EPS are $5.92 / $2.93 vs. my $4.97 / $4.29 (per share). The former EPS range is lower than mine and I cannot argue that as unreasonable due to the recent depressed quarterly EPS reports.

MS LSPF of $42.80 implies a Forecast Low P/E of 14.6 vs. the above-stated 12.5. MS LSPF is 16.9% greater than the default $2.93/share * 12.5 = $36.63, which results in more aggressive zoning. MS LSPF is 9.3% less than mine, however.

My TAR (over 15.0% preferred) is much less than the 8.2% from MS.

Despite my higher EPS range, MOS backing the current study seems robust.

I track a few different valuation metrics. PEG is 10.4 per my projected P/E: severely overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] per M* is significantly overvalued at 1.87. Kim Butcher’s “quick and dirty DCF” prices the stock at 12.5 * [$8.8 – ($0.00 + $0.75)] = $100.63 thereby suggesting the stock to be undervalued by 16.0%

Based on this stock study, I would look to buy CBRE under $57/share. At this point, I should sell. Because ’23 weakness was projected and because Value Line and M* have positive things to say about the company’s competitive positioning going forward, I will be patient with my holding to see how the future turnaround takes shape.

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