krisanapong detraphiphat/Second through Getty Photos
Elevator Pitch
I depart my present Purchase ranking for Newmark Group (NASDAQ:NMRK) unchanged.
My prior December 16, 2023, replace for NMRK referred to the inventory as “an undervalued capital markets restoration play.” The restoration in Newmark’s capital markets enterprise continues to be in progress, which suggests there may be nonetheless upside related to NMRK’s future monetary and share value efficiency.
The corporate’s not too long ago disclosed in-line This fall 2023 outcomes and above-expectations FY 2024 steering present assist for my bullish view of Newmark. I see no cause to vary my Purchase funding ranking for NMRK, on condition that the inventory is undervalued primarily based on the Worth-to-Earnings Development or PEG metric.
Fourth Quarter Monetary Efficiency Was Largely In Line
Newmark launched its This fall 2023 monetary outcomes on February 22, 2024, earlier than buying and selling hours.
NMRK’s prime line and non-GAAP adjusted EPS grew by +23.1% YoY and +43.8% YoY to $747.4 million and $0.46, respectively for This fall 2023. The corporate had achieved a serious turnaround in the newest quarter. Previous to this, Newmark had reported damaging prime line and bottom-line development for 5 straight quarters operating between Q3 2022 and Q3 2023.
It’s also secure to say that Newmark’s key This fall 2023 monetary metrics met the analysts’ expectations. The precise fourth quarter income for NMRK was +0.5% higher than the consensus top-line forecast of $743.5 million, whereas its This fall 2023 backside line was simply barely (-1.4%) decrease as in comparison with the consensus EPS projection of $0.47.
Certainly, it was NMRK’s capital markets companies that drove the sharp improve in prime line and earnings for the corporate within the newest quarter.
In particular phrases, the income generated from Newmark’s industrial mortgage origination and funding gross sales companies expanded by +45.9% YoY and +20.7% YoY, respectively for This fall 2023 as indicated in its earnings presentation slides. It’s also vital to notice that NMRK’s capital markets companies carried out effectively on each an absolute and a relative (versus the sector as an entire) foundation. At its This fall 2023 outcomes briefing, Newmark highlighted that “industry-wide funding gross sales exercise was down by over 40% within the US and Europe, whereas US industrial and multifamily originations decreased by 25%” for the fourth quarter of the prior 12 months.
As a comparability, NMRK’s non-capital markets companies, leasing and administration providers, witnessed comparatively extra modest gross sales development of +19.6% and +19.9%, respectively on a YoY foundation within the last quarter of the earlier 12 months.
Newmark’s shares went up by +4.6% on the February 22, 2024, buying and selling day, after the corporate revealed its newest quarterly monetary efficiency within the morning earlier than the market opened. It wasn’t simply the This fall 2023 turnaround that impressed buyers; NMRK’s favorable monetary prospects for 2024 as detailed within the subsequent part are prone to have been seen in a optimistic gentle by the market.
Fiscal 2024 Earnings Steerage Exceeded Expectations
2024 is anticipated to be a a lot better 12 months for NMRK vis-à-vis 2023.
Final 12 months, income and normalized EPS for Newmark fell by -8.7% YoY and -29.5% YoY to $2,470.4 million and $1.05, respectively. As per the mid-point of the corporate’s FY 2024 steering, NMRK is anticipating that its prime line and backside line will rise by +5% and +7%, respectively. The implied fiscal 2024 normalized EPS steering of $1.12 is considerably larger than the prior consensus bottom-line estimate of $1.01 per share for the present 12 months.
A comparability of NMRK’s FY 2023 numbers with its pre-COVID metrics means that it’s life like to count on an additional enchancment within the firm’s monetary efficiency this 12 months.
Income derived from the corporate’s non-capital markets companies (administration providers and leasing) in FY 2023 was +22% larger than the mixed top-line contribution for these companies in FY 2019. In distinction, Newmark’s funding gross sales for the prior 12 months had been solely 83% of its pre-pandemic or FY 2019 funding gross sales.
Individually, Newmark outlined its expectations of a +20% improve in “debt capital markets quantity” for the corporate in 2024 at its This fall 2023 earnings briefing. That is primarily based on fairly conservative assumptions of steady (versus rising) market share and Mortgage Bankers Affiliation’s 2024 forecast of a +20% development for debt capital markets as an entire, as per NMRK’s administration commentary on the quarterly earnings name.
In abstract, I maintain the view that NMRK’s +7% earnings development steering for FY 2024 is achievable.
Present Valuations Level To Additional Upside For The Firm’s Shares
NMRK’s inventory value has gone up by +47% since I upgraded the inventory’s ranking from a Maintain to a Purchase with my earlier July 17, 2023 write-up. However I’m of the opinion that Newmark’s shares nonetheless have legs to run.
Newmark’s shares are low cost relative to its development prospects. The market is now valuing NMRK at 9.2 occasions ahead FY 2024 P/E primarily based on its EPS steering of $1.12. However Wall Avenue sees the corporate’s normalized EPS increasing at a CAGR of +12.8% (supply: S&P Capital IQ) for the FY 2025-2027 time interval. Which means that Newmark is presently buying and selling at a PEG or Worth-to-Earnings Development a number of of 0.72 occasions, or beneath the 1 time implies honest worth.
Concluding Ideas
Newmark’s FY 2024 steering signifies that the corporate expects to register first rate income and EPS development for the present 12 months. NMRK’s favorable medium-term development outlook supported by the restoration in capital markets has but to be integrated into Newmark’s valuations, contemplating that it trades at a PEG metric of lower than 1. As such, I persist with a Purchase ranking for NMRK.
