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Lower Transactions to Hurt Jones Lang (JLL) Amid High Rates

Jones Lang LaSalle’s JLL transaction-based businesses are likely to bear the brunt of macroeconomic uncertainties, along with an elevated interest rate environment. Foreign currency fluctuations and restricted credit availability add to its woes.

The global economy has experienced an uneven recovery amid macroeconomic uncertainties and geopolitical unrest. Capital markets have slowed down because of tighter underwriting assumptions and higher debt costs. Occupiers remain cautious in the current market environment, awaiting more price discovery and thus delaying the closing time of transactions.

As a result, the company's transaction-based businesses have been adversely affected by an industry-wide decrease in investment sales and sluggish leasing activity. With subdued consumer and business sentiment expected in the near term, it is likely that JLL's transaction-based businesses will continue to suffer. We project a year-over-year decline of 9.9% and 26% in fee revenues for JLL’s Market Advisory and Capital Markets segments, respectively, in 2023.

The company faces competition from a variety of real estate service providers and institutional entities on a global, regional and local level. Some of them are more established on a local or regional scale or have a greater presence in a particular market or service offering. This could lead to an increase in the commoditization of the services and limit JLL's capacity to increase fees, thus impacting its profitability.

Moreover, JLL has an extensive international presence and unfavorable foreign currency movements and limited credit availability are hurting its business. This downtrend is expected to affect the company’s profitability in the near term. Further, the business segments of JLL are subject to cyclical fluctuations in revenues and operating margins.

Analysts also seem pessimistic regarding JLL’s earnings growth prospects. The Zacks Consensus Estimate for 2023 and 2024 earnings per share has been revised 1.1% and 1.4% downward, respectively, over the past seven days. Further, JLL currently carries a Zacks Rank #5 (Strong Sell).

Over the past three months, shares of JLL have declined 7.3% against the industry's upside of 2.1%.

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Zacks Investment Research

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Despite the above-mentioned concerns, JLL is poised to benefit from its wide range of real estate products and services offerings. Its new contract wins and the expansion of services with existing clients are likely to aid JLL’s Work Dynamics segment’s performance. It also maintains a solid balance sheet with adequate liquidity.

A Stock to Consider

A better-ranked stock from the broader real estate industry is LGI Homes LGIH, sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus estimate for LGI Homes’ current-year EPS has been raised 10.8% over the past 60 days to $8.59.

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