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What's in the Cards for Realty Income (O) in Q3 Earnings?

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Realty Income Corp.’s (O - Free Report) third-quarter 2022 results are slated for a Nov 2 release after the bell. The company’s quarterly results are likely to display year-over-year increases in revenues and funds from operations (FFO) per share.

In the last reported quarter, this monthly dividend-paying real estate investment trust (REIT) delivered a surprise of 2.11% in terms of adjusted FFO per share. Results reflected better-than-expected revenues for the quarter. The company benefited from expansionary effects.

Over the trailing four quarters, the company surpassed estimates on three occasions and missed the same on the other, the average surprise being 0.78%. This is depicted in the graph below:

Realty Income Corporation Price and EPS Surprise

Realty Income Corporation Price and EPS Surprise

Realty Income Corporation price-eps-surprise | Realty Income Corporation Quote

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

Factors to Consider

Per a report from CBRE Group (CBRE - Free Report) , retail metrics remained robust in the third quarter, given the onset of the holiday season. The core retail sales, excluding gasoline and automobiles, climbed 8.2% from the prior-year period. The overall retail availability rate fell nearly a full percentage point year over year to 5% in the third quarter. The average asking rent increased by 2.5% year over year to $22.55 per square foot in the third quarter.

Realty Income’s third-quarter results are likely to reflect the benefits of having essential retail tenants in its roster. A focus on leasing to service, non-discretionary and low-price-based retailers is expected to have helped the company enjoy steady rental revenues in the quarter.

Moreover, Realty Income focuses on external growth through the exploration of accretive acquisition opportunities. Such trends are anticipated to have continued in the to-be-reported quarter.

The company’s solid underlying real estate quality and prudent underwriting at acquisitions helped the company maintain its high occupancy levels consistently. In the third quarter too, the occupancy level is likely to have been healthy. Also, with the company’s high-quality real estate portfolio leased to large, well-capitalized tenants, its cash flows are expected to have been decent.

Further, the acquisitions of well-located commercial properties add to the company’s scale, offering a competitive edge to its industry. Hence, solid property acquisition volumes at decent investment spreads are likely to have aided O’s performance.

The Zacks Consensus Estimate for quarterly revenues is pegged at $830.9 million, suggesting a 68.9% increase from the year-ago quarter. The consensus mark for rental revenues (excluding reimbursable) is $776.43 million, up from the prior quarter’s $759.83 million and the year-ago period’s $462.42 million.

Realty Income emerged as a company with decent financial health through its efforts to boost its balance sheet strength. This trend is likely to have continued through the July-September period as well.

However, Realty Income’s activities during the soon-to-be-reported quarter were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the third-quarter FFO per share has been revised a cent south to 97 cents. However, it suggests 6.6% growth year over year.

Here Is What Our Quantitative Model Predicts:

Our proven model does not conclusively predict a surprise in terms of FFO per share for O 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 an FFO beat. However, that’s not the case here.

Realty Income currently carries a Zacks Rank #3 and has an Earnings ESP of -0.86%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are some stocks from the broader REIT sector — Public Storage (PSA - Free Report) , Extra Space Storage Inc. (EXR - Free Report) and Host Hotels & Resorts, Inc. (HST - Free Report) — that you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.

Public Storage, slated to release quarterly numbers on Nov 1, has an Earnings ESP of +1.34% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Host Hotels & Resorts, scheduled to report quarterly numbers on Nov 2, currently has an Earnings ESP of +0.71% and carries a Zacks Rank of 3.

Extra Space Storage, slated to report third-quarter earnings on Nov 1, currently has an Earnings ESP of +1.31% and carries a Zacks Rank of 3.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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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