Jones Lang LaSalle Inc. (JLL, Financial) provides a wide range of commercial real-estate-related services from leasing, property and project management, and capital advisory. Additionally, Jones Lang LaSalle's (commonly known as JLL) investment arm, LaSalle Investment Management oversees nearly $60 billion for clients across diverse public and private real estate strategies.
One hand feeds the other as JLL has built a massively successful business with revenue north of $8 billion. But after reporting solid numbers on Aug. 8, the stock has fallen by nearly 16%. This has given long-term investors a significant opportunity to start a position while the stock is trading below all major historical price multiples.
Five-year average
P/E: 17.6
P/B: 2.3
P/S: 1.0
Current
P/E: 14.5
P/B: 1.90
P/S: 0.55
It also carries far less debt than its big U.S. rivals. Where Cushman & Wakefield (CWK, Financial) had $3.1 billion of debt at the end of March, and market leader CBRE Group (CBRE, Financial) had $1.76 billion in debt, according to its latest quarterly filing, Jones Lang LaSalle has just $719.8 million. JLL is about twice the size of Cushman and half the size of CBRE by revenue and market value.
JLL is past its acquisition problems
In 2016 JLL purchased property management company Integral U.K., and the integration process has hampered results for years, but that looks to be coming to an end. The company also canceled some money-losing contracts, which will likely improve earned profits in the next few years. Easing these challenges has put many analysts on the JLL bandwagon with 20% earnings growth well within reach in 2018 and 2019.
JLL recently announced the acquisition of Northwest Atlantic, a retail-tenant representation and advisory firm in Canada. JLL hopes that this deal will build upon its relatively small retail services portfolio in a country that is considered to be more stable than the U.S. This is more of a bolt-on acquisition and should have no effects on bottom-line performance.
The company is looking to earn $10.39 per share in 2018 and $10.93 per share in 2019, meaning that it has almost doubled its profit since 2013. Investors can expect the same thing with its book value, which is above $75 per share and moving towards $100 per share.
The future is bright for JLL
With over 250 years of operations, JLL has been able to build the second largest commercial real estate brand and service platform in a hyper-competitive industry. It is one of a handful of firms that can satisfy a global clientele and continued urbanization demand for institutional real estate investors.
This creates a strong competitive advantage showcased with returns on invested capital greater than 17% during the last decade. That shouldn't change going forward, which is why this price is so sweet. This stock has a history of volatility, but the company is moving toward more stabilized revenue streams, and investors should see the overall value of the company reach new levels in five and 10 years.
If it earns $10.93 in 2019 and trades anywhere close to its historic price multiple, the stock could easily surpass its all-time high and move north of $200 per share.
Disclosure: I am not long/short any stock mentioned in this article.
