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CBRE Group (CBRE) to Post Q4 Earnings: What's in the Cards?

CBRE Group, Inc. CBRE is slated to report fourth-quarter 2018 results on Feb 13, before the market opens. The company is anticipated to display year-over-year growth in both revenues and earnings.

In the last reported quarter, this Los Angeles, CA-based commercial real estate services and investment firm delivered a 5.33% positive earnings surprise. Results indicate strong top-line growth, driven by occupier outsourcing.

In fact, CBRE has a decent record of earnings surprise, having surpassed estimates in each of the trailing four quarters, coming up with average positive beat of 6.19%. The graph below depicts this surprise history:

CBRE Group, Inc. Price and EPS Surprise

Let’s see how things are shaping up for this announcement.

Factors to Consider

CBRE Group has a robust scale as the largest commercial real estate services and investment firm (based on 2017 revenues). The company is among the few offering a full suite of services to multi-national clients. It has an extensive knowledge of domestic and international real estate markets, and its market-leading position is likely to lend it a competitive edge in capitalizing on the commercial real estate industry tailwinds.

Moreover, CBRE Group has grown organically and banked on strategic in-fill acquisitions to fortify its service offerings and geographic reach. The company has made concerted efforts to diversify its revenue base over the past years. It has opted for a better-balanced and more resilient business model, and in pursuit of this, shifted the revenue mix toward more contractual sources and leasing. This trend is expected to have continued into the fourth quarter as well.

Furthermore, occupiers of real estate are increasingly opting for outsourcing and depending on the expertise of third-party real estate specialists to achieve improvement in execution and efficiency. With a market-leading position and being one of the few companies boasting occupier outsourcing capabilities on a global scale, CBRE Group remains well poised to capitalize on the favorable trends in the Dec-end quarter.

Amid these, the Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $5.94 billion, indicating projected growth of nearly 37.1% year over year.

Nonetheless, shift toward a comparatively lower-margin outsourcing business might strain the company’s margins. Additionally, things, of late, have been turning sour and the commercial real estate market, both domestic and international, do not appear as prosperous as it used to be.

The industry, rather, seems to be entering the late stages of its growth cycle. In fact, after years of witnessing decent growth, commercial real estate transaction volumes have decelerated in the past couple of years. Along with the financial markets’ volatility, investors and lenders are compelled to adopt a more cautious approach with respect to underwriting, thereby, affecting the sales activity. Further, trade tensions, political uncertainty and volatile equity markets are anticipated to add to these woes, affecting transaction levels.

Also, CBRE Group’s activities during the Oct-Dec quarter did not gain analysts’ confidence. As a result, the Zacks Consensus Estimate for fourth-quarter earnings remained unchanged over the last 30 days at $1.13. However, it indicates a year-over-year increase of 14.1%.

Here is what our quantitative model predicts:

CBRE Group does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for CBRE Group is 0.00%.

Zacks Rank: CBRE Group carries a Zacks Rank #4 (Sell), currently.

This combination of Zacks Rank and Earnings ESP makes us apprehensive about any positive surprise in the quarter.

Stocks That Warrant a Look

Here are a few stocks in the real estate sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Hersha Hospitality Trust HT, scheduled to release earnings on Feb 25, has an Earnings ESP of +3.81% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sabra Health Care REIT, Inc. SBRA, slated to release fourth-quarter results on Feb 24, has an Earnings ESP of +5.49% and a Zacks Rank of 3.

Federal Realty Investment Trust FRT, set to report quarterly numbers on Feb 13, has an Earnings ESP of +1.53% and carries a Zacks Rank #3.

Note: Anything related to earnings presented in this write-up for REITs represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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