This article is proudly sponsored by Lake Region State College!
About JLL
Among my friends and family members I am famous for my long walks.
Not on the beach or anything, just out and about in my neighborhood and surrounding areas.
Whether it is so I can dedicate time to listening to some music, get a little casual exercise in or swim around in my own thoughts for a few hours, I’ve recently found myself walking in and around downtown Austin, Texas, and among all of the new and improved properties being developed in the city, I’ve hardly seen anyone coming in and out of the buildings, and if I ever do feel so adventurous, I will periodically walk into a fancy corporate building and still find myself alone with the bored out of their mind security guard manning the front.
Being an economics and business guy, I began doing some digging and it seems as though the numbers back up my observations and the fact that commercial real estate is just not as hot as it used to be, and while I am admittedly bullish on certain corners of the economy, I have become increasingly bearish on commercial real estate in both the short and long-terms.
Apparently, office vacancies within the United States are nearing a whopping 20%, which, given all of the commercial real estate developments, corporate offices and centers around the country, should, I think, frighten those looking to dive headfirst into commercial real estate.
It is my opinion that this shortly post-COVID-19 era that we are currently living in, where less and less are going back to the office and more and more are electing to perform their work tasks from their humble abodes, is here to stay and is frankly only going to expand in popularity.
I mean, come on, once you get a taste of the good life of only worrying about putting on a professional top half and the rest is more casual than I’d like to admit, why in the world would you want to get back into the routine of waking up earlier than necessary, getting cleaned up, getting the kids out the door and hopping on your respective mode of transportation only to finally settle at work and only then begin getting your work done?
While I don’t think that the world is ever going to be completely over and done with corporate offices, the numbers and trends within indicate to me that this trend of heightened office vacancy rates isn’t likely going to slow down anytime soon.
None of this exactly bodes well for a company such as Chicago, Illinois-headquartered Jones Lang LaSalle, better known as JLL, especially since this is a company that is in the business of offering a host of services directly tied to commercial real estate. For instance, some of the services that JLL offers include helping companies source and find corporate homes, acting as a sort of real estate agent for major companies and corporations, and, of course, receiving a fee for this service.
In addition to helping companies scout great office locations, JLL also generates revenue by maintaining these properties, a prime example of this being the facilities services division of the company, offering janitorial and other sorts of maintenance services to the buildings it helps its clients find. In addition to other advisory services and offerings such as sometimes being a quasi-broker for these companies, helping them buy and sell properties, JLL can, all things considered, be thought of as a strategic advisor for those that operate within the commercial real estate sector.
I don’t even really feel as though I need to dive too deep into just how cyclical the real estate sector can be (cough, cough 2008), and how this cyclicality can undoubtedly bleed over into JLL’s top and bottom lines, so I just urge you all to recognize and fully acknowledge the fact that when the general real estate market goes down, times can get a bit tough for a company like JLL, and again, with my previous statements regarding my objective thoughts on the state of commercial real estate, to me, JLL has got something to prove.
JLL’s stock financials
Being the $10.94 billion company that Jones Lang LaSalle is, it is also accompanied by a share price of $232.94 along with a price-to-earnings (P/E) ratio of 37.22 and it does not currently pay out a regular annual dividend to its extensive shareholder base, this initial information hinting at the notion that this company’s stock (NYSE: JLL) is overvalued relative to its sum-of-the-parts, intrinsic and fair value worth, particularly when accounting for the commonly held rule that a stock with a P/E of 20 implies that it is trading at exactly fair value and what naturally follows is that a stock with a P/E greater than 20 indicates that its shares are overvalued.
Perhaps JLL will have some recent growth to display on the revenue front, however, being that this is both a very large company but also one that I don’t exactly already favor given my opinion(s) regarding the commercial real estate sector (don’t worry, I’m still focused on being objective but the facts surrounding and relating to this company still matter), but nevertheless let’s just say I am interested in learning more about this company from a strict financial standpoint.
With that, as it pertains to JLL’s balance sheet, the company’s executive team is in charge of approximately $16 billion in terms of total assets as well as just about $9.7 billion in terms of total liabilities, which is basically the cookie cutter balance sheet breakdown I was expecting from such a large, veteran company, which in this case is far from being a bad thing, as JLL’s assets comfortably outweigh the total amount of its cumulative debts and other outstanding liabilities and with that, it still has enough debt on its books to signify that it can continue financing growth without breaking the bank or overleveraging itself into the abyss.
Onto the condition of the company’s income statement, JLL’s annual revenues between and during 2019 and 2023 have been net steady, and frankly far steadier than I had initially assumed, particularly during 2020 and 2021, as while the company did report some softening in revenue during this era, they didn’t fall nearly as low as I thought they would and its revenues have ramped back up to normal, heightened levels ever since. For example, JLL’s revenues for 2020 were reported as being $16.5 billion (a relative low during this time interval), which compared to its revenue figures during the three most recently reported years that followed, each year panning out to just about $20 billion is a fairly tight range given just how detrimental COVID was to the global real estate market, among others, of course.
All of this to say, the company’s top-line wasn’t hit as hard as I thought it would’ve been and for that I am standing somewhat corrected, tipping my hat towards JLL given that its revenues remained fortified during this era, but this still doesn’t change my views on the current commercial real estate market.
I’ll still give credit where credit is due, though.
At any rate, according to the company’s cash flow statement, JLL’s total cash from operations have been pretty darn low in comparison to the corresponding revenues it was able to generate, with, for example, the company’s revenues in 2023 standing at around $20 billion and during the exact same reporting period, the company was only able to carve out $576 million in terms of cash from its prevailing business operations.
This strongly indicates that JLL has a tiny net profit margin, perhaps due to maintaining a forest of expenses that all too consistently nip and bite chunks out of the company’s total revenues.
JLL’s stock fundamentals
And boy does JLL have a not-so-impressive net profit margin.
According to the figures shown on Charles Schwab’s platform, JLL’s net profit margin sits down below at 1.42%, which is unexcited on both the basis of it being a low net profit margin by itself but also on the basis of competition, with its most active and fortified direct competitor, CBRE Group Incorporated, maintaining a net profit margin of a low but still better 3.23%, and while a degree of this can probably be attributed to JLL being a larger, more scaled company and thus more operationally complex company that demands more of its margin to be sacrificed in order to continue paying for its massive global services footprint, I think it is about time for the company’s board to get together and think long and hard about its current expenses and how it can cut them without compromising the quality of its services and more profitable arms of its business.
Obviously they’ve probably already done this or do this weekly, however, 1.42% is low.
Period, end of story.
Well, not quite, but almost.
Heck, no wonder it can’t afford to comfortably issue an annual dividend.
Ok, I’m almost done.
Should you buy JLL stock?
When putting all of these pieces together, some of which include an overpriced stock with very consistent (my polite way of saying flat) recent annual revenue figures, a good balance sheet and an extremely thin net profit margin, throwing into the mix my thoughts on commercial real estate in the long run, I am not convinced by JLL in the slightest, and while I still deem it to be a big, important and essential company that will probably never go out of business, I see no positive catalysts for this company at the moment and with commercial office space vacancies continuing to rise, this just happens to be one of the other handful of headwinds facing this company and the clients and sector it serves.
For the time being, I am most comfortable lending JLL’s stock (NYSE: JLL) a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
© 2024 MacroHint.com. All rights reserved.