Acquisition Of Raise Commercial Real Estate Will Strengthen Technology Platforms For Future Success

Key Takeaways

• Strategic acquisitions and operational realignment may boost revenue growth and improve net margins through enhanced technology platforms and operating efficiencies.
  
• Expansion in investment trusts and potential capital recovery may increase assets and attract investors, supporting earnings and revenue growth.
  
• Diminished asset valuations and fluctuating sector dynamics may strain JLL's revenue growth, margins, and reinvestment capabilities amidst economic and market uncertainties.

Catalysts

Operates as a commercial real estate and investment management company.

• JLL's strategic acquisition of Raise Commercial Real Estate is expected to enhance its leasing technology platform, potentially boosting future productivity among brokers and client experience, which could lead to revenue growth in the leasing business.
  
• The realignment of property management into a single segment could allow JLL to capitalize on synergies, drive operating efficiencies, and potentially enhance net margins through improved platform operations.
  
• Expansion of JLL Income Property Trust in LaSalle's U.S. open-ended core fund, with significant incremental investment, might attract high net worth investors and increase assets under management, potentially supporting future earnings growth.
  
• The anticipated recovery in capital markets, supported by improved investor sentiment, interest rate reductions, and increased transaction activity, suggests potential revenue growth and margin expansion in capital markets operations.
  
• Sustained organic growth in the Workplace Management segment, led by new client mandates and contract scope expansion, is expected to scale revenues and potentially enhance overall enterprise earnings.

Jones Lang LaSalle Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jones Lang LaSalle's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.1% today to 3.4% in 3 years time.
• Analysts expect earnings to reach $934.9 million (and earnings per share of $19.67) by about December 2027, up from $478.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.7x on those 2027 earnings, down from 26.6x today. This future PE is lower than the current PE for the US Real Estate industry at 27.6x.
• Analysts expect the number of shares outstanding to grow by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.0%, as per the Simply Wall St company report.

Jones Lang LaSalle Future Earnings Per Share Growth

Risks

• JLL is dealing with valuation declines within its assets under management, particularly with its LaSalle business segment, which could continue to impact revenue and strain future earnings growth.
  
• The real estate office sector is experiencing increased deal size, but still remains below the pre-pandemic average, potentially affecting long-term revenue stability, especially given shifting demand and market preferences.
  
• There is uncertainty about capital market recovery influenced by broader economic factors such as fluctuating interest rates, which could impede more significant revenue growth and affect future earnings performance.
  
• Lower growth in JLL Technologies shows revenue declines driven by lower solutions bookings and can impact adjusted EBITDA, contributing to potential challenges in maintaining or increasing net margins.
  
• The company experienced higher cash taxes and working capital headwinds related to workplace management growth, impacting free cash flow and potentially hindering reinvestment capabilities or debt reduction efforts.

Valuation

• The analysts have a consensus price target of $311.33 for Jones Lang LaSalle based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $353.0, and the most bearish reporting a price target of just $216.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $27.6 billion, earnings will come to $934.9 million, and it would be trading on a PE ratio of 19.7x, assuming you use a discount rate of 8.0%.
• Given the current share price of $268.27, the analyst's price target of $311.33 is 13.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.