We came across a bullish thesis on CBRE Group Inc. (CBRE) on ValueInvestorsClub by beethoven. In this article, we will summarize the bulls’ thesis on CBRE. CBRE’s stock was trading at $90.38 when this thesis was published, vs. a closing price of $129.40 on November 7.
CBRE is the world’s leading commercial real estate and investment company due to its large scale, reliance on data, and lean costs. The company has gradually evolved its revenue model from a transactional one to a more sustainable income model. Since 2017, CBRE’s Global Workforce Solutions (GWS) segment, which was just 25% of CBRE’s sales in 2017, has become its biggest segment, generating 49% of total sales in 2023 and potentially higher in 2024. There has also been an increase in CBRE’s revenue, as evidenced by the rise in “Resilient” revenue from 29% in 2006 to almost 70% in 2023, giving CBRE a chance to build long-term stability.
Another factor that strengthens CBRE’s financial position is its capital management strategy. It has demonstrated the ability to share buybacks and close M&A transactions during bearish markets. The current CBRE management, under the leadership of Chairman and CEO Bob Sulentic, has focused on delivering value to shareholders, which has been apparent in massive buybacks over recent periods of market turmoil. It’s also predicted that CBRE will maintain its intense buyback activities during the next five years, backed by high free cash flow (FCF), which can boost its earnings-per-share (EPS) growth.
These capital returns also define the valuation possibilities of the company. CBRE has meager capital expenditure needs and high FCF conversion, which provide it with substantial coverage to fund share repurchases and increase EPS. CBRE’s growth plan for the years up to 2028 is to achieve an estimated core EPS of $12.15, about three times 2024 levels. The valuation is currently at a conservative multiple of 18-19 times forward earnings, but with successful execution, it could result in a target price of $230, which is a good return for patient shareholders.
However, changes in interest rates may affect CBRE’s real estate transactions. There is also a cyclical risk in the Development and Investment Management segments, as recovery rates may be slower than expected, which in turn influences growth rates.
Despite market risks, CBRE’s strong balance sheet and sound capital management under the leadership of experienced managers position it for further dynamic development and long-term growth.
While we acknowledge the potential of CBRE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CBRE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: Stavros Tousios has no positions in the aforementioned stocks.