CBRE Stock Study (5-15-23)

I recently did a stock study on CBRE Group, Inc. (CBRE) with a closing price of $73.10. Previous studies on this stock can be seen 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.

This large-size company has grown sales and earnings at annualized rates of 17.8% and 18.0%, respectively, for the last 10 years. Lines are mostly up, straight, and parallel except for sales in ’20 and EPS in both ’20 and ’22. PTPM has trended slightly lower over the last 10 years while edging out peer and industry averages. PTPM last-5-year average is 6.1%.

Aside from a downside outlier in ’20 (11.4%), ROE has ranged from 16.8% in ’22 to 22.9% in ’19 over the last 10 years to beat peer and industry averages. The last-5-year average is 19.2%. Debt-to-Capital has been trending down since ’15 with a last-5-year average of 35.6%. This is about even with the industry and slightly higher than peer averages. Per Value Line, Interest Coverage is 25 and Financial Strength gets an A rating. M* assigns a Standard rating for Capital Allocation.

I forecast long-term annualized sales growth of 2% based on the following:

• CNN Business projects 2.9% YOY and 4.9% per year for ’23 and ’22-’24, respectively (based on 8 analysts).
• YF projects YOY 3.8% and 6.6% for ’23 and ’24, respectively (3 analysts).
• Zacks projects YOY growth of 3.7% and 7.7% for ’23 and ’24, respectively (3).
• Value Line projects 2.7% annualized growth from ’22-’27.
• CFRA projects 0.1% YOY and 3.5% for ’23 and ’22-’24, respectively.
• M* offers a 2-year ACE of 3.8% per year along with its own analyst estimate of 4.9% per year for the next 10 years.

I am forecasting below the range.

I forecast long-term annualized EPS growth of 3% based on the following:

• CNN Business reports ACE of a 14.9% YOY contraction and 1.0% growth per year for ’23 and ’22-’24, respectively (based on 8 analysts), along with 5-year annualized growth of 11%.
• MarketWatch projects annualized growth of 2.7% and 9.4% for ’22-’24 and ’22-’25, respectively (11 analysts).
• Nasdaq.com projects annualized growth of 18.7% and 17.4% for ’23-’25 and ’23-’26, respectively [4, 3, and 1 analyst(s) for ’23, ’25, and ’26].
• YF projects YOY 15.6% contraction and 20.6% growth for ’23 and ’24, respectively (6), along with 11% annualized growth for the next five years.
• Zacks projects YOY 12.8% contraction and 22.0% growth for ’23 and ’24, respectively (3).
• Value Line projects 2.7% annualized growth from ’22-’27.
• CFRA projects 17.3% YOY contraction and 2.9% contraction per year for ’23 and ’22-’24, respectively, along with 3-year CAGR of -3.0%.
• M* projects long-term growth of 12.0% per year.

I am forecasting near the bottom of the long-term-estimate range (mean of four: 9.2%). While this is conservative, I am projecting from the ’22 EPS of $4.29/share rather than Q1 ’23 of $3.48/share (annualized).

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

My Forecast Low P/E is 10. Over the last decade, low P/E has ranged from 10.0 in ’19 to 21.0 in ’13 with a last-5-year average of 12.3. I am forecasting at the bottom of the range.

My Low Stock Price Forecast (LSPF) is the default value of $42.90. This is 41.3% less than the previous closing price and 26.9% less than the ’21 low.

These inputs land CBRE in the HOLD zone with an U/D ratio of 0.7. Total Annualized Return (TAR) is 5.3%.

PAR (using Forecast Average—not High—P/E) is -0.3%, which is not acceptable. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 52 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%, 9.6%, 21.0, and 12.7. I am lower across the board. Value Line projects a future average annual P/E of 15.0, which is lower than MS (16.9) and just higher than mine (14.5). Based on the low sample size, MOS behind this study seems robust due to growth rate.

With regard to other data, MS high and low EPS are $6.34/share and $3.13/share in contrast to my $4.97 and $4.29. My low EPS may be higher due to projection from ’22 EPS (higher than Q1 ’23), but I’m not really sure why $3.13 is that low. My high EPS is lower due to my lower forecast growth rate. MS Low Stock Price Forecast of $44.20 implies a Forecast Low P/E of 14.1 (versus the above-stated 12.7), is 3.0% less than mine, and is 11.2% greater than the $3.13 * 12.7 = $39.75 default.

I would look to re-evaluate the stock under $55/share.