Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how CBRE Group Inc. (CBG) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): CBRE Group, Inc. is a holding company that conducts all of its operations through its indirect subsidiaries. The Company is a commercial real estate services firm. The Company offers a range of services to occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial real estate. As of December 31, 2011, it operated approximately 300 offices worldwide, providing commercial real estate services under the CBRE brand name, investment management services under the CBRE Global Investors brand name and development services under the Trammell Crow brand name. In August 2014, CBRE Group Inc acquired Preuss Gesellschaft mbH and subsidiaries (Preuss), provider of project management services in Germany. In August 2014, the Company acquired CBRE Louisville, commercial real estate services firm that has served as CBRE’s affiliate in metropolitan Louisville, Kentucky and southern Indiana.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
- Dividend Record – has paid a dividend for at least 10 straight years – FAIL
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
- Moderate PEmg ratio – PEmg is less than 20 – FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – FAIL
- Earnings growth – EPSmg greater than 5 years ago – PASS
|Value Based on 3% Growth||$16.69|
|Value Based on 0% Growth||$9.79|
|Market Implied Growth Rate||10.06%|
|Net Current Asset Value (NCAV)||-$5.75|
Balance Sheet – September 2014
Earnings Per Share
Earnings Per Share – ModernGraham
CBRE Group Inc. does not pay a dividend.
CBRE Group Inc. is not suitable for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio, lack of earnings stability or growth over the last ten years, lack of dividends, as well as the poor PEmg and PB ratios. The Enterprising Investor is concerned with the level of debt relative to the net current assets along with the lack of dividends. As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $0.41 in 2010 to an estimated gain of $1.15 for 2014. This level of demonstrated growth outpaces the market’s implied estimate of 10.06% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.
Be sure to check out previous ModernGraham valuations of CBRE Group Inc. (CBG) for greater perspective!
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects. What do you think? What value would you put on CBRE Group Inc. (CBG)? Where do you see the company going in the future? Is there a company you like better? Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclaimer: The author did not hold a position in CBRE Group Inc. (CBG) at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.