Analysts' Choice: Jones Lang Shares Still Prime Property

9/14/2015


  Recent Price
$146
  Dividend
$0.54
  Yield
0.4%
  P/E Ratio
15
  Shares (millions)
45
  Long-Term Debt As % Of Capital
20%
  52-Week Price Range
$179.97 - $118.79

Shares of Jones Lang LaSalle ($146; JLL) have gotten clobbered in the stock market's recent rout, triggered in part by concerns of slowing growth in China.

China accounts for just 3% of annual revenue for Jones Lang, a provider of real-estate services and investment management, with Hong Kong another 3%. Yet the stock has slumped 17% since setting an all-time high Aug. 11. We see the company's catalysts for upside outweighing potential risks. Jones Lang LaSalle, yielding 0.4%, is a Focus List Buy and a Long-Term Buy.

Weighing risks and rewards

Jones Lang has produced annual growth of at least 10% for sales and 6% for per-share profits in five straight years. Stiff foreign-currency headwinds have pressured recent results, yet Jones Lang continues to grow at a healthy clip for both sales (up 22% in 2014 and 11% in the first half of 2015) and per-share profits (38%, 43%). Returns on assets, equity, and investment are also steadily marching higher.

Some of Jones Lang's strongest growth has come from a volatile source. The company collects performance fees for investment-management services, focusing on real-estate securities for institutional investors and affluent individuals.

This unit delivered a sales gain of 45% in 2014, followed by 24% in the first half of 2015, with performance fees driving much of that growth. However, performance fees tend to be less predictable than Jones Lang's other revenue streams and may suffer in the wake of the global sell-off. Investment-management services account for less than 10% of total revenue but about a third of operating profits.

The other businesses look healthy. Jones Lang's capital markets and hotels unit (roughly 16% of total revenue) posted 34% higher sales in the first half of 2015 and seems likely to generate the strongest growth for the remainder of the year and 2016. As one of few companies with sufficient scale to handle clients' commercial real estate needs on a global scale, Jones Lang appears well-positioned to gain market share worldwide.

Encouragingly, analyst estimates have risen in the past 60 days. Yet expectations still seem modest, with September-quarter earnings per share projected to slip 13% despite 3% higher revenue.

Strong free cash flow, up 21% to $270 million in the 12 months ended June, could help Jones Lang top expectations. Management seeks to funnel 55% of excess cash into acquisitions, and it announced three small deals in the September quarter alone.

At 15 times trailing earnings, the stock's P/E ratio hovers near its lowest level since 2012 and offers an 18% discount to its five-year average of 19. If the stock's P/E merely returns to its three-year average of 18 and Jones Lang meets the low 2015 profit estimate, shares will climb 17% to $170 over the next five months. If its P/E reverts to five-year norms and the company meets the current consensus profit estimate for the 12 months ending June, shares will surge 27% to $185 in the year ahead.

An annual report for Jones Lang LaSalle Inc. can be obtained 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 '15
2.01
vs.
1.68
8%
174.83
-
160.04
19 - 17
Mar '15
0.94
vs.
0.38
16%
170.85
-
144.01
20 - 17
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
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
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
93
85
70
94
47
76
46

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


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