Public Storage (PSA Quick QuotePSA - Free Report) is slated to report second-quarter 2016 results on Jul 27, after the market closes.

Last quarter, this self-storage real estate investment trust (“REIT”) missed the Zacks Consensus Estimate by 4.11%. Over the trailing four quarters, the company exceeded estimates in three occasions and missed in the other, resulting in an average negative earnings surprise of 0.38%.

Presently, the Zacks Consensus Estimate for the second-quarter funds from operations (“FFO”) per share is pegged at $2.38.

Let’s see how things are shaping up for this announcement.
 

PUBLIC STORAGE Price and EPS Surprise

PUBLIC STORAGE Price and EPS Surprise | PUBLIC STORAGE Quote

Factors to Consider

Amid modest supply, Public Storage remains well poised to experience growth in same-store revenues, backed by a rise in realized annual rent per occupied square foot and increased occupancy levels.

The company has a strong brand image and is a recognized and established name in the self-storage industry in the U.S. Strategic acquisitions and strong presence in key cities serve as growth drivers. Further, it has managed to create a significant presence in the European markets as well, through the Shurgard Storage Centers buyout.

However, the company operates in a highly fragmented market, facing intense competition from numerous private, regional and local operators, which partially limits its power to raise rents. The recent challenging economic environment is also anticipated to limit any robust uplift in the performance of its European business. Moreover, the company has a significant development and refurbishment pipeline, which increases operational risks and exposes it to rising construction costs.

Finally, Public Storage’s performance was inadequate to gain analysts' confidence during the quarter. As a result, the Zacks Consensus Estimate for the second quarter remained unchanged at $2.38 over the last 30 days.

Earnings Whisper?

Our proven model does not conclusively show that Public Storage will beat on earnings this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. However, that is not the case here as you will see below.

Zacks ESP: Earnings ESP, which is the percentage difference between the Most Accurate estimate of $2.36 and the Zacks Consensus Estimate of $2.38, is -0.84%.

Zacks Rank: Public Storage carries a Zacks Rank #3. While a favorable rank increases the predictive power of ESP, a negative ESP itself lowers the chances of beat.

We caution against stocks with Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks That Warrant a Look

Here are a few stocks in the REIT sector you may want to consider, as our model shows that they have the right combination of elements to post a positive surprise this quarter:

Mid-America Apartment Communities Inc. (MAA Quick QuoteMAA - Free Report) has an Earnings ESP of +0.69% and a Zacks Rank #2. The company will report results on Jul 27.

Taubman Centers, Inc. has an Earnings ESP of +7.22% and a Zacks Rank #3. The company will release results on Jul 28.

Regency Centers Corp. (REG Quick QuoteREG - Free Report) has an Earnings ESP of +1.25% and a Zacks Rank #3. The company will release results on Aug 2.


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. All earnings per share numbers presented in this write up represent FFO per share.

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