Public Storage (PSA - Analyst Report) – the self-storage real estate investment trust (REIT) – is slated to report its first-quarter 2014 results on May 1, after the market close. Last quarter, it posted a 5.45% positive surprise.
The company has posted an average positive earnings surprise of 2.75% over the past four quarters, beating the Estimate in 3 of the last 4 quarters. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model reveals that Public Storage is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: The company’s Earnings ESP, which represents the difference between the Most Accurate estimate ($1.87) and the Zacks Consensus Estimate ($1.86), stands at +0.54%. This is meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank: Public Storage carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
What is Driving the Better-Than-Expected Earnings?
An improving economy has resulted in higher product usage and modest pricing power. However, a lack of new supply has essentially helped the company to lower its marketing expenses, promotional discounts and raise the prices to new customers. Hence, this increased demand and modest new supply offers Public Storage ample scope to augment its bottom line.
In addition, the company has been capitalizing on growth opportunities in upscale U.S. markets and in 2013, the company acquired 121 self-storage properties for around $1.2 billion, marking the company’s largest expansion since the 2006 Shurgard merger. The properties, positioned in the major markets are expected to augment its presence and market share.
As of Dec 31, 2013, Public Storage had interests in 2,200 self-storage facilities (spanning around 141 million net rentable square feet) in the U.S. and 188 storage facilities in Europe (approximately ten million net rentable square feet) operated under the “Shurgard” brand. Public Storage also owns 42% common equity interest in PS Business Parks Inc. (PSB - Analyst Report), which owns and operates commercial space, primarily flex, multi-tenant office and industrial space.
Other Stocks to Consider
Public Storage is not the only firm looking up this earnings season. Other stocks in the REIT sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
Host Hotels & Resorts, Inc. (HST - Analyst Report), with an Earnings ESP of +3.33% and a Zacks Rank #3 (Hold). The company will report its first-quarter 2014 results before the market opens on May 1.
Kimco Realty Corp. (KIM - Analyst Report), with an Earnings ESP of +2.94% and a Zacks Rank #3 (Hold). The company will report its first-quarter 2014 results on May 7, after the closing bell.
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.