CBRE (CBRE)

Commercial real estate firm CBRE (NYSE:CBRE) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 12.3% year on year to $8.91 billion. Its non-GAAP profit of $0.86 per share was 11.2% above analysts’ consensus estimates.

Company Overview

Established in 1906, CBRE (NYSE:CBRE) is one of the largest commercial real estate services firms in the world.

Technology has been a double-edged sword in real estate services. On the one hand, internet listings are effective at disseminating information far and wide, casting a wide net for buyers and sellers to increase the chances of transactions. On the other hand, digitization in the real estate market could potentially disintermediate key players like agents who use information asymmetries to their advantage.

CBRE’s primary competitors include Jones Lang LaSalle (NYSE:JLL), Cushman & Wakefield (NYSE:CWK), Colliers International (NASDAQ:CIGI), and BGC Partners (NASDAQ:BGCP).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Unfortunately, CBRE’s 8.3% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the consumer discretionary sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. CBRE’s annualized revenue growth of 9% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

CBRE also breaks out the revenue for its most important segment, Advisory Services. Over the last two years, CBRE’s Advisory Services revenue (leasing, capital markets) was flat. This segment has lagged the company’s overall sales.

This quarter, CBRE reported year-on-year revenue growth of 12.3%, and its $8.91 billion of revenue exceeded Wall Street’s estimates by 0.6%.

Looking ahead, sell-side analysts expect revenue to grow 10.4% over the next 12 months, similar to its two-year rate. While this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.

CBRE’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 4% over the last two years. This profitability was lousy for a consumer discretionary business and caused by its suboptimal cost structure.

This quarter, CBRE generated an operating profit margin of 3.1%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

CBRE’s EPS grew at an unimpressive 7.1% compounded annual growth rate over the last five years, lower than its 8.3% annualized revenue growth. However, its operating margin didn’t change during this time, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

In Q1, CBRE reported EPS at $0.86, up from $0.78 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects CBRE’s full-year EPS of $5.18 to grow 18.7%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

CBRE has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.6%, lousy for a consumer discretionary business.

CBRE burned through $610 million of cash in Q1, equivalent to a negative 6.8% margin. The company’s cash burn increased from $560 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

CBRE historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, CBRE’s ROIC averaged 2.4 percentage point decreases each year. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

CBRE reported $1.38 billion of cash and $7.41 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.82 billion of EBITDA over the last 12 months, we view CBRE’s 2.1× net-debt-to-EBITDA ratio as safe. We also see its $129 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see CBRE beat analysts’ revenue, EPS, and EBITDA expectations this quarter. Overall, this quarter had some key positives. The stock traded up 1.6% to $123.90 immediately following the results.

Updated: May 21, 2025 at 10:07 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in CBRE.

We see the value of companies helping consumers, but in the case of CBRE, we’re out. First off, its revenue growth was uninspiring over the last five years. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its low free cash flow margins give it little breathing room. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

CBRE’s P/E ratio based on the next 12 months is 19.7x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $142.83 on the company (compared to the current share price of $127.50).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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