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UDR to Report Q2 Earnings: What's in Store for the Stock?

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UDR Inc. (UDR - Free Report) is slated to report second-quarter 2020 results on Jul 28, after the bell. The company’s results will likely reflect year-over-year growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Denver, CO-based residential real estate investment trust (REIT) posted a negative surprise in terms of FFO per share.

In the trailing four quarters, the company met the Zacks Consensus Estimate on three occasions and missed in the other, the average negative surprise being 0.46%.

Let’s see how things have shaped up for this announcement.

Factors to Consider

The April-June period, which marks the start of the prime leasing season for the U.S. apartment market, has not been a favorable one this time as the pandemic has impacted the economy and substantial job cuts in the beginning of the quarter affected leasing activity.

Per the latest report from real estate technology and analytics firm RealPage (RP - Free Report) , the second quarter witnessed demand for just 33,966 units across the country’s 150 largest markets. This marks roughly one-fourth of the average apartment product absorption realized in the second quarter in the past five years.

Majority of the demand was seen in June as leasing activity in several locations were limited in the previous months. Moreover, Sun Belt markets topped second quarter apartment demand. However, a number of gateway markets suffered net move-outs during the to-be-reported quarter, and urban core neighborhoods struggled the most.

Nevertheless, UDR has a geographically-diverse portfolio with superior product-mix of A/B quality properties in urban and suburban markets. The company’s portfolio includes properties throughout the United States, including both coastal and Sun Belt locations. This strategy of maintaining a diversified portfolio is likely to have provided support in generating operating cash flows during the quarter under review.

Moreover, the company is focused on curbing expenses through technological initiatives and process enhancements. Such efforts to find efficiencies throughout its operating platform are likely to have boosted workforce productivity and residents’ experience. Adoption of technology is also expected to have bolstered margin and long-term profitability.

UDR’s Next Generation Operating Platform allows it to electronically interact with, and provide service to, residents and prospects throughout the company’s diversified portfolio. Also, this has become all the more essential in this social-distancing era, as the virus outbreak needed a quick shift to virtual operations for the continuity of business operations. This is likely to have provided UDR a competitive edge over others in the quarter under consideration.

The Zacks Consensus Estimate for second-quarter revenues is currently pegged at $315.9 million, indicating 12.3% year-over-year growth.

Prior to the second-quarter earnings release, analysts seem to have become slightly optimistic about the company’s prospects as the Zacks Consensus Estimate for the April-June quarter FFO per share moved a cent north to 53 cents. It suggests year-over year growth of 1.9%.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for UDR this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

UDR currently carries a Zacks Rank #4 (Sell) and has an Earnings ESP of 0.00%.

Stocks That Warrant a Look

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

Extra Space Storage Inc. (EXR - Free Report) , set to report quarterly numbers on Aug 4, currently has an Earnings ESP of +2.65% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Iron Mountain Incorporated (IRM - Free Report) , slated to release second-quarter earnings on Aug 6, has an Earnings ESP of +4.76% and carries a Zacks Rank of 3 at present.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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