Hot Property

3/23/2015


  Recent Price
$164
  Dividend
$0.50
  Yield
0.3%
  P/E Ratio
19
  Shares (millions)
45
  Long-Term Debt as % of Capital
10%
  52-Week Price Range
$165.73 - $112.57

What's better than a company generating double-digit revenue growth in every division of its core business and fattening its profit margins? That same company, also operating a fast-growing complementary business that delivered a whopping 46% increase in sales last year.

Real estate developer Jones Lang LaSalle ($164; JLL), which now calls itself JLL, operates 3.4 billion square feet of real estate in 80 countries. While real estate operations are booming, we expect major contributions from LaSalle, an investment manager that accounts for a small but growing portion of revenue.

The stock is a Focus List Buy and a Long-Term Buy.

Growth and value

Last year, JLL increased sales 22%, per-share profits 38%, and operating cash flow 70%. JLL used its impressive cash flow to boost its dividend (a 9% hike in December), pay off debt (net debt down 63% for the year), and stockpile extra cash. Going forward, the company targets $0.55 of every investment dollar for acquisitions, compared to $0.05 for the dividend, $0.10 for joint investments, and $0.30 for technology and other upgrades.

While we don't expect a repeat of 2014's growth, expectations seem unduly low, given recent operating performance. Estimates are trending higher but still call for per-share-profit growth of just 4% this year and 10% next year — this for a company that has exceeded the consensus by at least 11% in three straight quarters.

Such operational success attracts attention; JLL shares have returned 26% over the last six months and 38% over the last 12. Despite those gains, JLL remains reasonably valued. The stock earns a Quadrix Value score of 63 and trades at 19 times trailing earnings, 5% below its five-year average and 6% below the median for S&P 1500 real-estate stocks.

Making hard assets look easy

Last year, JLL generated 46% of its real-estate revenue in the Americas; 32% in Europe, the Middle East, and Africa; and 22% in Asia. All three regions posted at least 19% higher total revenue at constant currency for the year, with fee revenue up at least 11%. LaSalle, the investment business, managed a 46% gain and now accounts for nearly 9% of company fee revenue, up from about 7% in 2013.

JLL expects another solid year for the real estate business in 2015. Sales from leasing (32% of fee revenue in 2014) rose 17% last year despite flat absorption. This year, the company expects absorption, the rate at which available properties sell, to accelerate about 5% from last year's rates. In the capital-markets business (17% of revenue), JLL forecasts a 5% to 10% increase in investment volumes. Property and facility management (23%) won 119 new contracts last year, boosting square footage by at least 3%.

LaSalle raised a record $8.9 billion in equity capital last year, and its assets under management rose nearly 13% to $53.6 billion. Incentive fees rose eightfold, accounting for more than 25% of segment revenue, up from 5% in 2013. While we won't see such growth this year, incentive fees still represent the unit's best growth driver.

You can obtain an annual report for Jones Lang LaSalle Inc. 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
Dec '14
4.30
vs.
3.33
16%
154.25
-
118.79
20 - 15
Sep '14
2.31
vs.
1.49
23%
136.49
-
123.45
20 - 18
Jun '14
1.68
vs.
1.15
29%
126.96
-
112.57
20 - 18
Mar '14
0.39
vs.
0.36
21%
125.29
-
101.17
20 - 16
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Est.
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2014
5.43
8.69
0.48
154.25
-
101.17
18 - 12
2013
4.46
6.32
0.44
103.23
-
80.86
16 - 13
2012
3.93
5.48
0.40
87.52
-
61.39
16 - 11
2011
3.58
4.83
0.30
107.84
-
46.01
22 - 10
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
97
95
63
95
52
90
81

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


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