We expect Essex Property Trust Inc. (ESS - Free Report) to beat earnings expectations when it reports third-quarter 2015 results on Oct 29, after the market closes.
Why a Likely Positive Surprise?
Our proven model shows that Essex Property – the Palo Alto, CA-based residential real estate investment trust (“REIT”) – has the right combination of two key ingredients required for an earnings beat.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +0.82%. This is a very meaningful and leading indicator of a likely positive earnings surprise for the stock.
Zacks Rank: Essex Property carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 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 is Driving the Better-Than-Expected Earnings?
Armed with a strong property base and solid balance sheet, Essex is expected to suitably leverage the attractive West Coast market fundamentals, wherein job growth amid lower supply of properties will likely drive demand. Rent is expected to grow in the company’s same-store portfolio; while leasing activity for communities delivered recently is projected to gain pace.
The company has revised its 2015 outlook upward, backed by robust operating conditions in targeted West Coast markets as well as accelerating operating results.
However, general and administrative expenses are anticipated to mount, while interest expense will likely increase due to financing of external growth measures.
During the third quarter, Essex Property’s performance was inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the stock has remained stable at $2.44 per share over the last 7 days.
Other Stocks to Consider
Essex Property is not the only stock looking up this earnings season. You could also consider other REIT stocks that have the combination of a positive Earnings ESP and a favorable Zacks Rank, and are hence poised for an earnings beat this quarter:
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.
BioMed Realty Trust Inc. has an Earnings ESP of +7.69% and a Zacks Rank #3. The company will report results on Nov 4.
CubeSmart (CUBE - Free Report) has an Earnings ESP of +3.13% and a Zacks Rank #2. The company will announce results on Nov 5.
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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