On Monday, Wolfe Research adjusted its stance on Newmark Group , Inc. (NASDAQ: NASDAQ:NMRK), shifting the rating from Outperform to Peerperform. The move comes after a notable uptick in the company's stock price, which has risen approximately 24% since Wolfe Research's previous upgrade. Despite this increase, consensus estimates have remained unchanged, prompting a reassessment of the stock's performance outlook.
The research firm pointed out that Newmark Group appears to be the least expensive stock within their coverage when considering as-reported earnings. However, Wolfe Research highlighted that the company's adjusted earnings do not account for stock compensation expenses. This accounting practice is worth noting as it can affect the comparability of the firm's financial performance with its peers.
Newmark Group has shown a strong 22% growth in adjusted earnings per share (EPS) year-to-date. Nonetheless, Wolfe Research anticipates that this growth will plateau in the fourth quarter of 2024 due to challenging comparisons with the fourth quarter of 2023, a period that benefited from the success of SignatureBank loan sales. Looking ahead to 2025, the firm expects Newmark Group's growth to resume, but at a pace that slightly lags behind that of its peers, partly due to share-based compensation, which necessitates repurchases to mitigate the growth in share count.
The analysis also took into account broader market conditions, noting that high long-term interest rates could pose risks to transaction volumes. Despite these concerns, Wolfe Research also observed that credit spreads are tightening. Additionally, recent commentary from a real estate investment trust (REIT) conference was positive regarding deal flow, suggesting a constructive environment for Newmark Group's operations.
In other recent news, Newmark Group reported robust growth in the third quarter of 2024. Total (EPA:TTEF) revenues reached $685.9 million, marking an 11.3% rise, while adjusted earnings per share increased by 22.2% to $0.33. The company's capital markets revenues saw an 18% increase and mortgage brokerage volumes surged by 77%.
In a significant development, Newmark Group's Executive Chairman, Howard W. Lutnick, has been nominated as the U.S. Secretary of Commerce. Lutnick plans to resign from his roles at Newmark, Cantor, and BGC, and divest his interests, potentially placing his stake into a trust. Piper Sandler maintains a positive outlook on Newmark, citing potential simplification and independence as factors that could enhance the company's appeal.
Newmark Group has ambitious plans, aiming to double its management services and servicing revenues to over $2 billion within five years. The company also intends to expand its European presence, initiating operations in Germany and growing in the UK and France. However, due to the treatment of legal settlements, the company revised its adjusted EBITDA guidance downward. These are among the recent developments shaping the company's trajectory.
InvestingPro Insights
Newmark Group's recent performance and market position are further illuminated by data from InvestingPro. The company's stock has shown remarkable strength, with a 95.12% price total return over the past year and a 47.43% return in the last six months. This aligns with Wolfe Research's observation of the stock's significant appreciation, which led to their rating adjustment.
InvestingPro Tips highlight that Newmark Group is trading at a low revenue valuation multiple, which could be attractive to value investors. However, it's also noted that the stock is trading at a high earnings multiple, with a P/E ratio of 50.26. This high valuation relative to earnings might explain Wolfe Research's caution, despite the company's strong recent performance.
Another relevant InvestingPro Tip indicates that management has been aggressively buying back shares. This strategy aligns with Wolfe Research's mention of share repurchases to offset the impact of share-based compensation on share count growth.
For investors seeking a more comprehensive analysis, InvestingPro offers 9 additional tips for Newmark Group, providing a deeper understanding of the company's financial health and market position.
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