The inheritance is in, and it couldn't come at a better time for some of Cendant's
Realogy, the real estate company that owns many of the popular brokerage units like Century 21, Coldwell Banker, and ERA, is earmarking most of its windfall to launch an ambitious share repurchase plan that will fund the buyback of nearly 20% of outstanding shares.
The generous self-nibbling is likely an attempt to cushion the blow of a bleaker outlook for the rest of the year. Management now sees revenue clocking in between $6.4 billion and $6.7 billion in 2006. Earnings per share, benefiting from the buyback that will reduce the number of outstanding shares, will come in between $1.42 and $1.75. The bottom-line range excludes costs related to the company's emancipation, as well as corporate costs tied to its former parent.
It could have been worse. As you can imagine, these aren't the best of times to be a real estate broker. Home prices have possibly hit a plateau, and that's the basis that determines brokerage commissions. More troublesome to the industry is the glut of inventory that is keeping homes on the market longer. That's a pain for the homesellers, but even worse for the brokers who have to spend more to advertise the slow-moving homesteads.
With all that in mind, Realogy isn't doing so terribly after generating revenue of $7.1 billion last year. Although 2007 may prove to be another challenging year, Realogy is sporting attractive multiples at this point.
It may not seem that way for those who bought in for those very reasons when Realogy began trading just three weeks ago. The shares have shed nearly 20% of their value in that brief time. Then again, that's how it is in this nervous housing market. Sometimes you have to drop your price a bit to attract a full house of willing buyers.
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Cendant is a former recommendation of the Motley Fool Inside Value newsletter service.
Longtime Fool contributor Rick Munarriz does not own any of the shares in this company, but he may look into some of Cendant's parts once the dust settles. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. T he Fool has a disclosure policy.