Morgan Stanley analyst Ronald Kamdem upgraded CBRE Group Inc (NYSE:CBRE) to Overweight from Equal-Weight, raising the price forecast to $160 from $115.
The analyst writes the company is well-positioned for double-digit earnings growth due to its market-leading position in both stable, recurring business lines like mortgage servicing, property management, and valuation, which make up about 60% of expected 2025 EBITDA, and higher-margin cyclical business lines like leasing, capital markets, and development, accounting for about 40%.
The analyst raised the 2025 transaction volume forecast to $450 billion, up 13% year-over-year. Despite a drop from the peak of $700 billion in 2021-2022, the analyst sees room for further margin expansion and operating leverage.
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Kamdem projects the company generate $1.1 billion in free cash flow (FCF) in 2025 and $1.3 billion in 2026, with a solid FCF conversion rate of around 60%.
Kamdem writes investors are focused on how the company will allocate its excess cash, and CBRE plans to use this for strategic acquisitions and share repurchases.
Recent acquisitions like Direct Line Global and J&J Worldwide Services are aimed at expanding capabilities, according to the analyst.
In addition to a strong FCF outlook, CBRE has authorized $5 billion for share repurchases, adding to the existing $4 billion.
Based on these factors, the analyst raised the price target, reflecting expectations for higher growth driven by a commercial real estate recovery and a potential total return of 29%.
The analyst also notes signs of improvement and increased confidence that a commercial real estate transaction recovery will occur in 2025.
Price Action: CBRE shares are trading higher by 5% to $131.06 at last check Wednesday.
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