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Morningstar | JLL Reports Impressive 2018 Results, Sending Shares Sharply Higher. See Updated Analyst Note from 12 Feb 2019

Jones Lang LaSalle handily beat 2018 consensus estimates, rounding off an incredibly successful year for the company. These results come in the wake of increasing economic and geopolitical uncertainty that has been of concern to the markets. Investors were encouraged by this news, and the shares consequently jumped 14% on the day of the release. Full-year results reflected double-digit organic growth in real estate services revenue, with particularly impressive performance in the Americas segment. We were encouraged by management’s guidance of 6%-8% organic fee revenue growth in real estate services. Accordingly, we have raised our 2019 revenue growth forecast. As a result of this near-term revision and the time value of money, we are raising our fair value estimate to $183 per share for wide-moat JLL. At current levels, the shares appear fairly valued to us.

Despite the recent deluge of headline risks, JLL has continued to report resilient growth figures. Full-year 2018 results reflected particular strength in leasing and property and facilities management. By contrast, the capital markets business showed some softness, with revenue flat to down in 2018. These results are largely a continuation of prevailing trends. Leasing and property and facility management both benefit from the increased tendency of multinational corporations to outsource their real estate operations and pursue office layout changes to attract younger employees.

JLL provided some interesting color regarding its 2019 global real estate outlook. This included the view that global investment would be 5%-10% lower, in part because of buoyant 2018 results creating a tough comparison and increased investor discipline. Nevertheless, capital values and rents are expected to rise modestly. Viewed in this light, we think JLL’s continued growth is especially impressive in that it assumes that the company continues to take share from smaller competitors.

We think JLL is better prepared to weather a downturn now than it was in the Great Recession. The capital markets business, which is a transaction-based business line that is more cyclical, now makes up a smaller percentage of overall revenue. We think leasing, facilities management, and advisory services are more insulated from the effects of a potential downturn.