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CBRE (CBRE) Up 10.6% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for CBRE Group (CBRE). Shares have added about 10.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is CBRE due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

CBRE Group Q2 Earnings & Revenues Beat Estimates

CBRE Group reported second-quarter 2020 adjusted earnings per share of 35 cents, beating the Zacks Consensus Estimate of 30 cents. However, the figure plummeted 57.1% year over year.

The company generated revenues of $5.4 billion, outpacing the Zacks Consensus Estimate of $5.1 billion. The revenue figure, however, compares unfavorably with the year-ago quarter’s $5.7 billion. Moreover, fee revenues were down 20.8% (19.5% in local currency), year on year, to $2.3 billion. Adjusted EBITDA plunged 42.9% (42.2% local currency) to $267 million.

The company’s continued expansion of its contractual businesses over the past decade supported this performance despite the coronavirus pandemic mayhem.

Per management, “Double-digit adjusted EBITDA growth in our Global Workplace Solutions segment demonstrated the resiliency of a business that occupier clients increasingly rely on, in good times and bad, to run essential operations and drive critical cost efficiencies.”

However, quarterly results were adversely impacted by incremental Covid-19-related costs and donation to the company’s Covid-19 Relief Fund.

Quarter in Detail

The company’s Advisory Services segment reported year-over-year revenue decline of 28.7% (27.4% local currency) to $1.6 billion. Fee revenues decreased 30.8% (29.6% local currency) to $1.3 billion.

With capital flows being severely disrupted and market-wide sales activity falling significantly amid the pandemic, global property sales revenues plunged 48% (47% local currency), including a decline of more than 50% in the United States. However, Greater China, Korea, Mexico and Switzerland registered solid sales revenue growth during the quarter.

Advisory leasing revenues dipped 38% (37% local currency), reflecting the impact of the pandemic since late March. With occupiers pausing leasing decisions, activity was weak across major parts of the world. Particularly, U.S. leasing revenues plummeted 43% year on year, though Germany, Greater China and Mexico were among the nations reporting notable growth.

Commercial mortgage origination revenues were down 28% (same local currency). Global capital market revenues, which comprise property sales and commercial mortgage origination, dropped 44% (43% local currency).

Valuation revenues were down 12% (9% local currency). In addition, property management and advisory project management revenues and fee revenues slipped 8% (6% local currency) and 4% (2% local currency), respectively.

However, Global Workplace Solutions segment results were relatively better because of the contractual nature of the facilities management business. The segment registered an increase of 8.3% (10.1% local currency) in revenues to $3.7 billion. Nonetheless, fee revenues edged down 1.2% (but up 0.5% in local currency) to $755 million. Quarterly results reflect growth in facilities management being offset by lower project management and transaction revenues.

Healthy demand from logistics, technology, financial services, and life-sciences sectors supported new contract activity. The company also witnessed a high renewal rate for expiring contracts.

The Real Estate Investments segment recorded 8% (9.5% local currency) growth in revenues to $162 million. However, adjusted EBITDA slumped 40.9% (39.5% local currency). This reflects a lower development asset sales activity due to transaction timing, and losses in the U.K. multi-family residential development business (Telford Homes) and Hana, the start-up flexible workspace business.

At second-quarter end, assets under management (AUM) aggregated $109.6 billion, reflecting an increase of $1.5 billion ($0.7 billion in local currency), from the prior-quarter end. This reflects net capital inflows and beneficial foreign-currency movement.

In-process development portfolio decreased to $13.7 billion, down $0.2 billion from the prior-quarter end. During the quarter, the pipeline increased $0.3 billion to $6.1 billion.

Balance Sheet Position

CBRE Group exited the April-June quarter with cash and cash equivalents of $1.2 billion, up from $971.8 million as of Dec 31, 2019.

As of Jun 30, 2020, the company had $3.5 billion of total liquidity. This comprised $1.1 million in cash in addition to the ability to borrow a total of $2.3 billion under its revolving credit facilities, net of any outstanding letters of credit. The company’s net leverage ratio was 0.59x as of the same date. This is 3.66x below the company’s primary debt covenant of 4.25x.

During the June-end quarter, the company did not repurchase any of its stock. Currently, it has $350 million of stock-repurchase capacity.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -25.42% due to these changes.

VGM Scores

At this time, CBRE has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise CBRE has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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