Real Estate Means Real Growth For JLL

9/1/2014


  Recent Price
$134
  Dividend
$0.46
  Yield
0.3%
  P/E Ratio
19
  Shares (millions)
45
  Long-Term Debt as % of Capital
23%
  52-Week Price Range
$136.49 - $80.86

When AstraZeneca ($74; AZN) decided to move its Australian headquarters, Jones Lang LaSalle ($134; JLL) brokered the sale of the building. When Volkswagen ($46; VLKAY) decided to lower costs by moving some of its operations to Eastern Europe, Jones Lang identified Poland as the best location for a new manufacturing plant and negotiated government tax incentives for the carmaker.

Jones Lang (also called JLL) provides services and investment management related to real estate. Its annual revenue rose at least 9% in each of the past four years, a period of weakness in the commercial real estate market.

Leasing activity has begun to pick up, with corporate clients once again looking to expand operations and rental rates for top-tier office space rising in nearly all of the company's geographic markets. Sales surged 25% in the first half of 2014, and the consensus anticipates 15% growth in the final six months of the year.

The stock looks timely, with Quadrix Momentum and Earnings Estimates scores above 95. Jones Lang is a Buy and a Long-Term Buy.

Business breakdown

Operating in more than 75 countries, Jones Lang enjoys broad geographic exposure to the commercial real estate market. It derives close to 60% of revenue outside of the U.S., with about 15% of revenue coming from the U.K. and 6% each from Australia and China.

Real estate services account for nearly 94% of fee revenue, which excludes vendor and subcontractor costs. These services include property management, project development, real estate financing, and consulting. Jones Lang also operates a leasing agency, which has benefited from both increased activity and market-share gains this year.

The investment-management business (7% of fee revenue) attracts institutional clients seeking exposure to real estate. The unit hopes to broaden its appeal to retail investors through publicly traded real estate investment trusts (REITs). Assets under management rose 5% to $50.0 billion in the first six months of the year, lifted by acquisitions and price appreciation.

Jones Lang's fee revenue has advanced at an annualized rate of 16% over the past decade, with 12% organic growth and the remainder from acquisitions. The company has completed more than 50 purchases since 2003, with many of these deals overseas. Jones Lang paid a total of $20 million for three acquisitions in the first half of 2014. The company expects mergers to contribute one-fourth of its long-term sales growth.

Conclusion

Shares have returned 31% so far in 2014, pushing the Value score down to 57. But the stock still looks reasonably priced, given its robust growth projections. The consensus sees per-share profits rising 15% in the 12 months ending June 2015, stronger than the average of 11% for real estate management and development stocks in the S&P 1500 Index. Yet Jones Lang shares trade at 16 times estimated year-ahead earnings, the lowest forward P/E ratio in its peer group.

An annual report for Jones Lang LaSalle Inc. is available at 200 E. Randolph Drive, Chicago, IL 60601; (312) 782-5800; www.jll.com.

JONES LANG LASALLE
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '14
6.08
vs.
4.78
22%
572.40
-
502.80
26 - 22
Mar '14
6.27
vs.
5.79
19%
614.44
-
541.14
28 - 25
Dec '13
6.01
vs.
5.33
17%
560.50
-
421.49
26 - 20
Sep '13
5.37
vs.
4.44
12%
464.00
-
422.78
23 - 21
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2013
59.83
21.94
0.00
560.50
-
347.76
26 - 16
2012
50.18
19.88
0.00
387.19
-
278.26
19 - 14
2011
37.91
18.02
0.00
323.38
-
236.51
18 - 13
2010
29.32
14.80
0.00
315.42
-
216.82
21 - 15
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
87
80
48
95
92
NA
63

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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