Summary
- CoStar Group is an information technology play in the rental and commercial real estate space.
- CSGP continues to widen the company’s “economic moat” with the recently announced acquisition of STR.
- An EPS Compound Annual Growth Rate (CAGR) of 72.9% over the last three years.
- Best Stocks Now 5-yr. target price of $1,096 (76% upside potential).
- CoStar's strong balance sheet is a driver for future growth.
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For “Income Investors” looking for an additional name to complement a portfolio of High Yelding REITs or the “Growth Investor” screening for sustainable YoY EPS Growth, CoStar Group is a company worthy of consideration.
CoStar provides information, analytics, and online marketplaces to the commercial/rental real estate industry in the United States and the United Kingdom. As the leader in the space, CSGP continues to fuel organic growth through acquisitions. Just last week, CoStar announced the $450 million cash acquisition of STR, a global leader in benchmarking & analytics for the Hospitality Industry.
History tells us that growth via acquisition is often “unsustainable”, because transactions become less and less accretive to the original business. On the contrary, CoStar Group continues an excellent track record of selecting, integrating, and growing their targeted business investments.
CSGP’s acquisition strategy has led to an EPS CAGR of almost 73% over the last three years. For the foreseeable future, quarterly earnings calls will surely be riddled with analysts’ questions on how STR is being integrated into CoStar’s portfolio. If past acquisitions are any indication, analysts and investors will like what they hear.
There is no better example of CoStar’s knack for accretive transactions than their purchase of Apartments.com, five years ago. At the time of purchase (2014), Apartments.com had annual revenue of $86MM. As of 2Q 2019, the Apartments.com business unit had TTM revenues of $500MM (a CAGR of 40%) and three consecutive quarters of record sales. Benefiting from the continuing increase of new supply in the “multifamily apartment” sector, 70% of new units built in the last two years are advertising with Apartments.com.
In June of 2019, CSGP purchased Off Campus Partners LLC, a leading online market place for student housing in the United States. Seen as a complement to Apartments.com, the purchase provides CoStar with exposure to 17MM college students in need of housing.
As the prospects for “sustainable” EPS Growth continue to blossom for CoStar, so does my Best Stocks Now! App Ranking for CSGP shares.
