The real estate services sector’s growth prospects appear promising as mortgage rates have declined, housing inventory has risen, and the spring buying season has begun.
Amid this backdrop, investors could consider buying fundamentally strong real estate stocks CBRE Group, Inc. (CBRE), Jones Lang LaSalle Incorporated (JLL), and Guild Holdings Company (GHLD), given their solid profit potential.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the real estate industry.
High mortgage rates and the unavailability of enough housing inventory had proved to be deterrents for home buyers. However, mortgage rates have fallen from their peak, and with more houses on the market, homebuyers are likely to rush to buy during the spring home-buying season.
According to the National Association of Realtors, existing home sales rose 9.5% sequentially in February, and prices rose 5.7% year-over-year, marking a solid start to 2024. Moreover, the total housing inventory at the end of February was 1.07 million units, up 5.9% sequentially and 10.3% year-over-year. Unsold inventory also rose in February to 2.9 months from 2.6 months in the prior-year period.
Fannie Mae’s Home Purchase Sentiment index rose by 2.1 points to 72.8 in February, marking the third consecutive month of improvement and the highest level since March 2022. The rise was attributed to improved optimism around home-selling conditions.
The global real estate market is projected to grow at a CAGR of 3.4% to reach $729.40 trillion by 2028. Investors’ interest in real estate stocks is evident from iShares Residential and Multisector Real Estate ETF’s (REZ) 10% returns over the past six months.
Considering this favorable backdrop, let’s assess the fundamentals of the three Real Estate Services picks, starting with the third choice.
Stock #3: CBRE Group, Inc. (CBRE)
CBRE operates as an international commercial real estate services and investment company. It operates through Advisory Services, Global Workplace Solutions, and Real Estate Investments segments.
On February 27, 2024, CBRE announced the completion of its acquisition of J&J Worldwide Services, a provider of engineering services for the U.S. federal government, from Arlington Capital Partners for $800 million in cash, with a potential earn-out of up to $250 million.
In terms of the trailing-12-month Return on Total Capital margin, CBRE’s 5.96% is 177.7% higher than the 2.15% industry average. Likewise, its 1.48x trailing-12-month asset turnover ratio is considerably higher than the 0.13x industry average. Likewise, its 12.23% trailing-12-month Return on Common Equity is 287.9% higher than the 3.15% industry average.
CBRE’s net revenues for the fourth quarter ended December 31, 2023, increased 4.3% year-over-year to $5.19 billion. Its core adjusted net income increased marginally year-over-year to $426 million, while its core EPS rose 3.8% year-over-year to $1.38. The company’s core EBITDA also came in at $737 million, representing a 10.4% increase year-over-year.
Analysts expect CBRE’s revenue for the quarter ended March 31, 2024, to increase 7.3% year-over-year to $7.95 billion. Its EPS for the quarter ending June 30, 2024, is expected to increase 16.1% year-over-year to $0.95. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 33.8% to close the last trading session at $95.43.
CBRE’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #5 out of 41 stocks in the Real Estate Services industry. It has a B grade for Growth and Sentiment. To see CBRE’s Value, Momentum, Stability, and Quality ratings, click here.
Stock #2: Jones Lang LaSalle Incorporated (JLL)
JLL operates as a commercial real estate and investment management company. It engages in buying, building, occupying, managing, and investing in commercial, industrial, hotel, residential, and retail properties across the Americas, Europe, the Middle East, Africa, and the Asia Pacific.
In terms of the trailing-12-month Return on Common Equity, JLL’s 3.66% is 16.1% higher than the 3.15% industry average. Likewise, its 1.40% trailing-12-month Return on Total Assets is 4.9% higher than the 1.34% industry average. Likewise, its 7.19% trailing-12-month Net Income/Total Debt is 12.5% higher than the 6.39% industry average.
JLL’s revenues for the fourth quarter ended December 31, 2023, increased 4.9% year-over-year to $5.88 billion. For the same quarter, its net profit attributable to common shareholders and EPS stood at $204.50 million and $4.23, respectively. Also, the company’s adjusted EBITDA came in at $306.40 million.
For the quarter ended March 31, 2024, JLL’s EPS and revenue are expected to increase 35.3% and 2.1% year-over-year to $0.88 and $4.81 billion, respectively. Over the past six months, the stock has gained 45.5% to close the last trading session at $194.31.
JLL’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth and Quality. Within the same industry, it is ranked #2. Beyond the grades mentioned above, we have also rated JLL for Value, Momentum, Stability, and Sentiment. Get all ratings here.
Stock #1: Guild Holdings Company (GHLD)
GHLD sells and services residential mortgage loans. It operates in two segments: Origination and Servicing. The company originates residential mortgages through retail and correspondent channels.
On February 14, 2024, GHLD agreed to acquire Academy Mortgage Corporation's retail lending assets, adding about 200 branches and over 1,000 employees. This acquisition boosts GHLD’s market share, positioning it as the 8th largest non-bank retail lender, and emphasizes GHLD’s focus on the purchase mortgage market and customer satisfaction.
In terms of the trailing-12-month gross profit margin, GHLD’s 100% is 67.3% higher than the 59.78% industry average.
GHLD’s net revenue for the fiscal fourth quarter ended December 31, 2023, amounted to $57.23 million. Its adjusted EBITDA stood at $13.20 million. Its adjusted net income came in at $12.50 million. Also, its adjusted EPS came in at $0.20.
Moreover, as of December 31, 2023, its total assets were $3.68 billion, compared to $3.24 billion as of December 31, 2022.
Street expects GHLD’s EPS for the quarter ended March 31, 2024, to increase 625% year-over-year to $0.21. Its revenue for the same quarter is expected to increase 6.5% year-over-year to $182.14 million. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 21.4% to close the last trading session at $27.47.
GHLD’s POWR Ratings reflect its positive outlook. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
Within the Real Estate Services industry, it is ranked #first. It has a B grade for Growth, Sentiment, and Quality. Click here to see GHLD’s Value, Momentum, and Stability ratings.
What To Do Next?
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CBRE shares were trading at $96.75 per share on Thursday afternoon, up $1.32 (+1.38%). Year-to-date, CBRE has gained 3.93%, versus a 10.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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