The shares of this real estate services firm have been on the minds of Wall Street lately, with Morgan Stanley upgrading the shares to ‘Overweight’; William Blair to ‘Outperform’; and new coverage by JMP Securities, with an ‘Market Outperform’ rating; and Goldman Sachs with a ‘Buy’ rating.
Cushman & Wakefield plc (CWK)
From Barclays Capital Equity Research
Initiating Coverage on Cushman & Wakefield plc with $21 PT. Cushman & Wakefield, a fully integrated global commercial real estate service provider, resulted from the combination of three firms—DTZ, Cassidy Turley, and C&W Group (2014/2015). Having successfully integrated/retooled three previously disparate companies under the iconic 100+ year old Cushman & Wakefield brand, the company now aims to grow its $5.3bn business as a public company. To that end, CWK went public in an IPO on August 1, 2018.
Real estate services—an estimated $140bn+ global industry—today extends beyond conventional transaction-based sales/leasing brokerage. Growing institutional allocations to real estate combined with increasingly sophisticated corporate requirements, prompted by the imperative to reduce costs, is driving outsourcing of real estate management to a handful of players with global scale/breadth of services. CWK is a direct beneficiary of this trend. With an estimated 20% aggregate share among top firms, and most real estate still managed in-house, we see ample runway for continued share gains for CWK.
While arguably less seasoned organizationally, CWK has assembled a deep bench of talent, retaining the best management from its predecessors. CEO Brett White previously led CBRE (2007-2012); senior management is similarly experienced. In this business, management vision and execution is critical.
Our investment thesis is predicated on the view that CWK will be able to pivot from platform integration to competing effectively with CBRE/JLL. To the extent CWK can accelerate revenue growth/expand margins, its 19% discount vs. peers should disappear. Our overweight rating is not without risk, however. This management team, although experienced, has not worked together on the public stage for very long. We are arguably late in the cycle and most importantly, the company has to execute to realize a multiple re-rating.
Ross L. Smotrich, Barclays Capital Equity Research, www.barcap.com, 212-526-2306, August 27, 2018