CBRE Earnings: Outsourcing Continues to Grow, but Advisory Sales Business Remains Under Pressure

Narrow-moat-rated CBRE Group reported middling second-quarter results as the outsourcing business remained solid, but the advisory sales business was impacted by lower transaction volume. We think that the brokerage business will continue to remain under pressure in the near term given our macroeconomic outlook and rising interest rates. The company reported core EPS of $0.82 per share in the first quarter, 8% higher than the FactSet consensus estimate of $0.76 per share. The core EPS in the second quarter was approximately 55% lower on a year-over-year basis. CBRE shares were down around 5% after the company released the results. CBRE reduced its earnings guidance for full-year 2023, with core earnings per share expected to decline by 20%-25% compared with the previous guidance of low to mid double digits. The guidance downgrade can mostly be attributed to a higher-than-expected decline in the advisory and real estate investment segments.

We had previously highlighted that the company’s old guidance was a bit aggressive as we expect the brokerage business to remain under pressure for a couple of years. The company’s updated 2023 guidance is more in line with our expectations. However, management’s 2024 guidance is still optimistic, in our opinion. Management said that there was a reasonable path to achieve record core EPS in 2024, although reaching that goal has become difficult with the delay in capital markets recovery. In our base-case forecast, we have the company reaching close to its 2022 core earnings peak in 2025 and exceeding it in 2026. The difference is largely on account of our belief that the transaction volume will be lower than what management anticipates as we expect interest rates to remain higher for longer. We have reduced our fair value estimate for CBRE to $89 per share from $90 after incorporating second-quarter results.