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What's in Store for Starwood Property (STWD) in Q4 Earnings?

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Starwood Property Trust (STWD - Free Report)  is scheduled to report fourth-quarter and 2020 results on Feb 25, before the opening bell. The company’s results will likely reflect a year-over-year growth in earnings per share (EPS), while revenues are expected to decline

In the last reported quarter, the mortgage real estate investment trust (mREIT) focused on commercial property mortgages and commercial real estate in the United States posted core EPS of 50 cents, which surpassed the Zacks Consensus Estimate of 47 cents. Results were supported by strong rent and interest payments received.

Over the trailing four quarters, the company outpaced the Zacks Consensus Estimate on three occasions and missed in the other. It delivered a surprise of 4.06%, on average, during this period.

STARWOOD PROPERTY TRUST, INC. Price and EPS Surprise

 

STARWOOD PROPERTY TRUST, INC. Price and EPS Surprise

STARWOOD PROPERTY TRUST, INC. price-eps-surprise | STARWOOD PROPERTY TRUST, INC. Quote

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

Factors at Play

Starwood Properties’ fourth-quarter revenues are likely to reflect benefits from its $1.5-billion of capital deployment across various business lines during the third quarter.

Moreover, the company’s medical office portfolio is expected to have performed well on the back of growing outpatient trend, increased admissions and higher surgery volumes. This is likely to have supported medical office portfolio rent collection and occupancy.

However, the company’s commercial and residential lending segment is anticipated to have taken a toll amid the pandemic-led setbacks. This is concerning as it makes up more than half of the company’s earnings.

Specifically, its loan exposure to commercial properties such as offices and hotels is likely to have hindered its fourth-quarter performance as both real estate asset classes have continued to be adversely affected by the pandemic. In fact, as of the third-quarter end, it had a 23% exposure to the hotel industry and 34% exposure to the office industry.

In the fourth quarter, too many hotel finances are anticipated to have been stretched due to operational disruptions, increasing the chances of loan defaults.  Moreover, a delayed return to offices and rent collection woes are expected to have depleted the financial condition of landlords, hindering their ability to meet loan repayments.

Additionally, the company’s exposure to residential mortgages, which contributes 11% to its earnings, is concerning as these are non-Agency mortgages.

While the Feds purchase efforts have stabilized the Agency mortgage market, the same cannot be said for the non-Agency market.  Hence, amid the continued effect of the pandemic, forbearance and delinquencies are anticipated to have affected the company’s residential lending segment.

Overall, the Zacks Consensus Estimate for fourth-quarter 2020 revenues is pegged at $269.5 million, suggesting a 5.9% decline on a year-over-year basis.  

Also, the company’s activities during the quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for fourth-quarter 2020 EPS has been unchanged at 50 cents in a month’s time. Nonetheless, it indicates year-over-year growth of 6.4%.

For the year, the Zacks Consensus Estimate for EPS has been unrevised at $1.97 over the past month. The figure suggests a 9.4% year-over-year increase. Revenues are projected to be down 9.74% year over year to $1.12 billion.

Here is what our quantitative model predicts:

Starwood Property does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Starwood Property is 0.00%.

Zacks Rank: Starwood Property currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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:

American Tower Corporation (AMT - Free Report) , set to report quarterly numbers on Feb 25, currently has an Earnings ESP of +7.49% and a Zacks Rank of 3.

Life Storage, Inc. (LSI - Free Report) , slated to release earnings figures on Feb 22, has an Earnings ESP of +0.43% and a Zacks Rank of 3, currently.

National Storage Affiliates Trust (NSA - Free Report) , scheduled to announce fourth-quarter results on Feb 22, has an Earnings ESP of +4.30% and a Zacks Rank of 2 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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Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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