CBRE Earnings: Management Gets Realistic on Recovery, Expects Earnings to Fully Recover by 2025

Narrow-moat-rated CBRE’s CBRE third-quarter results were largely in line with our expectations, as the advisory and real estate investment businesses were affected by low transaction volume and higher interest rates, but the outsourcing segment remained robust. We believe that the brokerage business will remain under pressure in the near term given our macroeconomic outlook and rising interest rates. The company reported core EPS of $0.72 per share in the third quarter, 7.1% higher than the FactSet consensus estimate of $0.67 per share. Core EPS in the third quarter was approximately 36% lower on a year-over-year basis.

CBRE has further reduced its earnings guidance for full-year 2023, with core earnings per share expected to decline by mid-30% compared with the previous guidance of a 20%-25% decline. The guidance downgrade can mostly be attributed to a higher-than-expected decline in the advisory and real estate investment segment. We would like to highlight that the updated guidance is in line with our expectations, as we have been pointing out that management’s recovery expectations were a bit too optimistic. We have previously pointed out that the company’s earlier guidance is expected to be revised downward as we expect the brokerage business to remain under pressure for a couple of years. The company’s updated comments on business recovery are now mostly in line with our expectations. We are maintaining our $89 per share fair value estimate for CBRE Group after incorporating third-quarter results.

The companywide net revenue was reported at $4.43 billion in the current quarter, a 5% decline on a constant currency basis compared with the same quarter of last year. Core EBITDA came in at $436 million, which is about 28% lower than the previous year because of the inherent operating leverage in the company’s business. The year-over-year decline in core EBITDA came mostly from the advisory and development services business of the company.