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Will Macerich (MAC) Beat Q3 Earnings on a Better Portfolio?

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We expect The Macerich Company (MAC - Free Report) to beat earnings expectations when it reports third-quarter 2015 results on Oct 27, after the market opens.

Why a Likely Positive Surprise?

Our proven model shows that Macerich – the Santa Monica, CA-based retail real estate investment trust (“REIT”) – has the right combination of two key ingredients for an earnings beat.

Zacks ESPEarnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +2.06%.  This is a very meaningful and leading indicator of a likely positive earnings surprise for the company.

Zacks Rank: Macerich carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating earnings. Conversely, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

What's Driving the Better-than-Expected Earnings?

In recent times, Macerich resorted to aggressive capital-recycling program which included sale of non-core and slower-growth assets, and usage of the proceeds toward higher-growth properties through acquisitions and development & redevelopment initiatives.

We believe such expansion activities, while adding value to the trophy asset, would also increase the footfalls at the super-regional mall. Macerich’s premium portfolio, strategic development efforts, rising mall tenant annual sales per square foot and re-leasing spreads are expected to aid its top-line growth, going forward. All these should get reflected in third-quarter 2015 results as well.

Moreover, a recovering economy, along with a better employment scenario, is expected to drive demand for retail goods. Hence, we believe this is an opportune moment for Macerich to provide real estate support to the retail sector. In fact, amid lower supply of new properties, steadily rising demand is emerging as the sector’s primary growth driver.

However, the retail REITs are presently facing stiff challenges, with an increasing number of customers gravitating toward online shopping. This has led to many retail REITs, including Macerich, incur additional expenses for exploring omni-channel routes.

During the third quarter, Macerich’s performance was inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the stock has remained stable at 97 cents per share over the last 7 days.

Other Stocks to Consider

You could consider other stocks in the REIT sector that have the combination of a positive Earnings ESP and a favorable Zacks Rank, and are hence poised for an earnings beat this quarter:

EPR Properties (EPR - Free Report) has an Earnings ESP of +2.68% and a Zacks Rank #3. The company will report third-quarter results on Oct 28.

Essex Property Trust Inc. (ESS - Free Report) has an Earnings ESP of +0.82% and a Zacks Rank #2. The company will report third-quarter results on Oct 29.

W. P. Carey Inc. (WPC - Free Report) has an Earnings ESP of +0.98% and a Zacks Rank #1. The company will report third-quarter results on Nov 3.

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.

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