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What's in the Cards for Welltower (HCN) in Q3 Earnings?

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Welltower Inc. is slated to report third-quarter 2016 results before the market opens on Nov 2. Last quarter, this healthcare real estate investment trust (“REIT”) had delivered a 0.88% positive earnings surprise.

In the trailing four quarters, the company surpassed estimates on all occasions with an average beat of 1.12%. The Zacks Consensus Estimate for third-quarter funds from operations (“FFO”) is currently pegged at $1.15.

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

Factors to Consider

Welltower enjoys a diversified portfolio in the healthcare real estate industry. Its efforts to grow and improve its healthcare portfolio quality along with lower leverage are expected to serve as growth drivers for the company. Further, its business relationship with experienced healthcare management companies & operators and strategic investments bode well for it.

Healthcare costs are escalating with senior citizens incurring higher medical expenses compared with the average population. Therefore, given its robust financial position, the company is well poised to capitalize on the opportunities available in the market.

WELLTOWER INC Price and EPS Surprise

 

WELLTOWER INC Price and EPS Surprise | WELLTOWER INC Quote

But intense competition might restrict the company’s growth. Further, generation of a major portion of revenues from few select tenants and governmental reimbursement programs also add to its risks.

Earnings Whispers

Our proven model does not conclusively show that Welltower will beat earnings this quarter. 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. That is not the case here as you will see below. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks ESP: The Most Accurate Estimate and the Zacks Consensus Estimate currently stand at $1.14 and $1.15, respectively, which translate into an Earnings ESP of -0.87%.

Zacks Rank: Welltower’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP as well to be confident about an earnings beat.

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

Stocks to Consider

Here are a few stocks in the real estate investment trust 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:

National Health Investors Inc. (NHI - Free Report) has an Earnings ESP of + 1.61% and a Zacks Rank #3. The company will report results on Nov 7.

Parkway, Inc. will report results on Nov 7. It has an Earnings ESP of +28.89% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Altisource Residential Corporation has an Earnings ESP of + 66.22% and a Zacks Rank #3. The company will report results on Nov 7.

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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