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Key Factors to Impact JLL's Performance This Earnings Season

Jones Lang LaSalle Inc. JLL, better known as JLL, is slated to report fourth-quarter 2018 results on Feb 12, before the market opens. The company is anticipated to display year-over-year growth in revenues, while earnings are likely to decline.

In the last reported quarter, this Chicago, IL-headquartered global professional services and investment management firm specializing in real estate, delivered a 30.7% positive earnings surprise. Results highlight robust organic growth, led by leasing, Corporate Solutions and LaSalle segments, and strong cash flows from operations.

In fact, JLL has surpassed estimates in three of the trailing four quarters and met in another, coming up with average positive beat of 26.91%. The graph below depicts this surprise history:

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

Factors to Consider

JLL has a broad range of real estate product and services, as well as an extensive knowledge of domestic and international real estate markets, thus, enabling it to operate as a single-source provider of real estate solutions.

The company is focused on balanced revenue growth across profitable markets. Also, its superior client services and strategic investment in technology and data capabilities offer a competitive advantage over the company’s peers, and are expected to help grow market share and win relationships. JLL has also banked on strategic acquisitions and gained strength to capitalize on an improving market environment.

Particularly, the Corporate Solutions business, which is the company’s multiservice outsourcing business, and includes integrated Facility Management and Corporate Solutions-related services from Leasing, Project & Development, as well as Advisory & Consulting, is likely to have experienced a decent fourth quarter. In fact, amid rising trend of outsourcing of real estate needs by companies, new contract awards and expansion of services with existing clients are likely to have strengthened JLL’s performance in the Dec-end quarter.

Amid these, the Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $4.71 billion, indicating projected growth of 85.6% year over year.

Nevertheless, incremental investments and rise in expenses related to revenue generation are likely to result in margin compression. In addition, increased cost of construction and shortages of labor have emerged as concerns for the commercial real estate industry.

Also, commercial real estate industry 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. Furthermore, trade tensions, political uncertainty and volatile equity markets are anticipated to add to the woes, affecting transaction levels.

As such, JLL’s activities during the Oct-Dec quarter did not gain analysts’ confidence. The Zacks Consensus Estimate for fourth-quarter earnings witnessed a marginal decrease over the last 60 days and is currently pinned at $4.74. This also reflects an estimated decline of around 3.7% year over year.

Here is what our quantitative model predicts:

JLL 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 the company is 0.00%.

Zacks Rank: JLL has a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of an earnings beat.

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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