Goldman Says Buy Jones Lang LaSalle, But Continues To Prefer CBRE

Goldman Sachs has upgraded Jones Lang LaSalle Inc (NYSE: JLL) to Buy from Neutral following 32.7 percent underperformance year-to-date versus the S&P 500. However, the brokerage continues to prefer CBRE Group Inc (NYSE: CBG).

"Capital markets (property sales) sentiment dominates broker discussion despite representing about 25 percent of JLL's 2016E EBITDA," analyst Brad Burke said, while noting that "capital markets activity is clearly decelerating."

However, the analyst followed up with two points:

• 1. "With flat capital markets we would expect JLL to realize strong growth on share gains and business diversity; and
• 2. "We expect long-term capital markets growth as higher turnover institutional investors represent a greater percent of CRE (commercial real estate) ownership."

Related Link: Janney Upgrades Equity Residential

A Few Risks

The analyst acknowledged risks with Jones Lang LaSalle from capital markets, as he estimates the company derives about 10 percent of 2016 EBITDA from UK leasing and capital markets, while noting that Brexit uncertainties may hurt the next couple of quarters. But, the company's "less-leveraged balance sheet offers lower-cost incremental capital," he menteioned.

"While we continue to forecast less investment management income, we believe this risk is much better appreciated following the 40 percent decline in share prices from the 52-week high," Burke highlighted.

Buy Ratings Throughout The Sector

Furthermore, although the analyst expects both CRE brokers to outperform, he prefers Buy-rated peer CBRE on less UK exposure, more year-over-year benefit from recent M&A and less pressure from tough investment management comps.

Burke maintains his price target of $141 on Jones Lang LaSalle, but raised CBRE's price target by $3 to $38.

At Time Of Writing...

• CBRE Group was trading up 3.28 percent at $28.67
• JOnes Lang LaSalle was trading up 3.85 percent at $110.93