CBRE Stock Study (5-13-24)

Posted by Mark on May 31, 2024 at 07:09 | Last modified: May 13, 2024 11:53

I recently did a stock study on CBRE Group, Inc. (CBRE, $90.22). Previous studies can be seen here, 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 last 10 years, this large-size company has grown sales and earnings at annualized rates of 15.7% and 12.9%, respectively. Visual inspection is mediocre. Revenue is mostly up with a dip in ’20 while EPS dips in ’20, ’22 and ’23 making for somewhat of a cyclical look.

Over the past decade, PTPM leads peer and industry averages despite trending down from 8.6% (’14) to 4.0% (’23) with a last-5-year mean of 5.6%. ROE leads peer and industry averages despite declining from 22.5% (’14) to 12.5% (’23) with a last-5-year mean of 18.7% (downside outlier of 11.4% in ’20 excluded). Debt-to-Capital is lower than peers and about even with the industry while falling from 51.8% (’14) to 36.9% (’23) with a last-5-year mean of 35.3%.

Value Line gives a Financial Strength rating of B++ along with Interest Coverage over 25.0. M* assigns a “Standard” rating for Capital Allocation and reports Quick Ratio of 1.1.

With regard to sales growth:

• YF projects YOY 10.5% and 9.6% for ’24 and ’25, respectively (based on 7 analysts).
• Zacks projects YOY 11.3% and 11.7% for ’24 and ’25, respectively (4 analysts).
• Value Line projects 4.1% annualized growth from ’23-’28.
• CFRA projects 8.7% YOY and 7.3% per year for ’24 and ’23-’25, respectively.
• M* offers a 2-year ACE of 9.1% per year along with its own analyst estimate of 6.3% per year for the next 10 years.

I am forecasting below the range at 4.0% per year.

With regard to EPS growth:

• MarketWatch projects 23.1% and 26.3% per year for ’23-’25 and ’23-’26, respectively (based on 11 analysts).
• Nasdaq.com projects 25.6% and 20.0% per year for ’24-’26 and ’24-’27 [5, 4, and 2 analyst(s) for ’24, ’26, and ’27].
• YF projects YOY 13.8% and 27.0% for ’24 and ’25, respectively (9), along with 11.0% per year for the next five years.
• Zacks projects YOY 16.4% and 29.1% for ’24 and ’25, respectively (5).
• Value Line projects 13.6% annualized growth from ’23-’28.
• CFRA projects 11.7% YOY and 19.8% per year for ’24 and ’23-’25 along with a 3-year CAGR of 20.0%.
• M* projects long-term growth of 18.6% per year.

I am forecasting below the long-term-estimate range (mean of three: 14.4%) at 10.0% per year. I will use ’23 EPS of $3.15/share as the initial value rather than 2024 Q1 EPS of $3.21 (annualized).

My Forecast High P/E is 19.0. Over the past decade, high P/E ranges from 16.3 in ’18 and ’19 to 30.5 in ’20 with a last-5-year mean of 24.6 and last-5-year-mean average P/E of 19.3. I am near the bottom of the range (only ’18 and ’19 are lower).

My Forecast Low P/E is 12.0. Over the past decade, low P/E ranges from 10.0 in ’19 to 20.5 in ’23 with a last-5-year mean of 14.0. I am near the bottom of the range [only ’19 and ’21 (10.9) are lower].

My Low Stock Price Forecast (LSPF) is $64.60. The default $47.20 based on $3.15/share initial value seems unreasonably low at 58.1% off the previous close. I will therefore use the 52-week low instead: 28.4% less than the previous close.

These inputs land CBRE in the SELL zone with a U/D ratio of 0. Total Annualized Return (TAR) is 0.2%.

PAR (using Forecast Average—not High—P/E) is an unacceptable -3.3%. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR 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 eight studies done in the past 90 days (my study along with four outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, and Forecast Low P/E are 8.0%, 14.2%, 23.5, and 13.9, respectively. I am lower across the board. Value Line projects a future average annual P/E of 15.0 that is lower than MS (18.7) and lower than mine (15.5).

MS high / low EPS are $6.20 / $3.17 versus my $5.07 / $3.15 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $7.25 is greater than both.

MS LSPF of $60.80 implies a Forecast Low P/E of 19.2 versus the above-stated 13.9. MS LSPF is 38.0% greater than the default $3.17/share * 13.9 = $44.06, which results in more aggressive zoning. MS LSPF is 5.9% less than mine, however.

TAR (over 15.0% preferred) is much less than MS 9.8%. Despite the very small MS sample, I am forecasting conservatively at every turn. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 2.6 per my projected P/E: overvalued. Relative Value [(current P/E) / 5-year-mean average P/E] also looks overvalued at 1.5.

What a difference nine months makes in terms of analyst estimates! Mixed growth/contraction numbers have given way to solid growth prospects.

Unfortunately, EPS has fallen in each of the last two years leaving those higher growth estimates to compound on a much lower base. I think this is why future appreciation potential is sapped. Perhaps the fate of a cyclical company is never having a compelling stock study. For me, this underlines the importance of “up, straight, and parallel” so as to not have the risk of historical inconsistency threatening whenever I look at the visual inspection.

CBRE is a BUY under $71/share. The stock needs to fall about 50% in order to satisfy my personal TAR criterion.

Full disclaimer: I currently own shares. While I’m tempted to hold for the impressive future growth estimates, I should probably sell for a small gain and look for something that more easily clears the barbed wire fence.