Real Estate Services Boost Jones Lang LaSalle

10/01/2015 8:00 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

Our latest featured stock idea is a provider of real-estate services and investment management, explains Richard Moroney, editor of Dow Theory Forecasts.

Jones Lang LaSalle (JLL) has gotten clobbered in the stock market’s recent rout, triggered in part by concerns of slowing growth in China.

The stock has slumped since, setting an all-time high in August.

Yet, China accounts for just 3% of annual revenue for Jones Lang, with Hong Kong another 3%.

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.

Sales were up 22% in 2014 and 11% in the first half of 2015 and per-share profits rose 38% and 43%. Returns on assets, equity, and investment are also steadily marching higher.

Some of Jones Lang’s strongest growth has come from performance fees for investment-management services, focusing on real-estate securities for institutional investors and affluent individuals.

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.

Strong free cash flow, up 21% to $270 million in the 12 months ended June, could help Jones Lang top expectations.

We see the company’s catalysts for upside outweighing potential risks. And we continue to rate the stock as a Focus List Buy.

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.

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