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McDonald's and Newell Brands have been highlighted as Zacks Bull and Bear of the Day
Read MoreHide Full Article
For Immediate Release
Chicago, IL – May 5, 2023 – Zacks Equity Research shares McDonald’s (MCD - Free Report) as the Bull of the Day and Newell Brands (NWL - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on CBRE Group (CBRE - Free Report) , Armada Hoffler Properties, Inc. (AHH - Free Report) and Granite Real Estate Investment Trust (GRP.U - Free Report) .
McDonald’s stock soared to fresh all-time highs to start May as investors dive into the safety and stability that the global fast-food power provides during an increasingly uncertain economy. Wall Street is also cheering on MCD’s corporate restructuring, Q1 earnings results, and more.
McDonald’s boasts an impressive track record that’s seen it power through multiple recessions and crush the market and many fellow historic corporate giants such as Walmart, Coca-Cola, and Disney over the last 25 years.
The Dividend Aristocrat is also prepared to shine as digital apps shake up the restaurant industry. In fact, the McDonald’s app was downloaded by more people globally in 2022 than Uber Eats and DoorDash combined—and it left all other restaurant chains in the dust.
A Beacon of Stability & Evolution
McDonald’s hasn’t needed an introduction almost anywhere on the planet in decades. MCD’s footprint includes around 40,000 locations in over 100 countries, with roughly 95% of its stores owned by franchisees.
The hamburger chain slowly tweaks its menu over the years, while keeping it remarkably consistent. Customers keep coming to McDonald’s, in large part, because they know exactly what they are going to get, which is something Wall Street loves about MCD stock too.
The McDonald’s brand consistently ranks in the top 10 to 15 globally alongside the likes of Apple, Disney, Coca-Cola and Nike. Rarely do you find any direct McDonald’s competitors near the top of these lists, which tells investors a ton. MCD has remained unwaveringly itself for decades while also slowly and subtly adapting and evolving.
McDonald’s hasn’t lost a step with older generations, while catering to younger people by rolling out digital point-of-sale kiosks, adding new on-trend menu items, and completely embracing mobile ordering and delivery. The Chicago-based company said recently that its efforts to speed up ordering and improve the customer experience are helping MCD eat away market share from rivals.
Despite the supposed health-food craze, the fast-food pioneer remains at the forefront of brand building and even app development. The McDonald’s app was downloaded 127 million times worldwide in 2022, according to Apptopia to crush Uber Eats’ 60 million, DoorDash’s 42 million and Starbucks’ 34 million.
Recent Growth and Outlook
McDonald’s posted 10.9% global comparable sales growth in 2022, which came on top of 17% YoY expansion in the key metric in 2021. MCD’s adjusted earnings climbed roughly 9% and 50%, respectively during this same stretch. The restaurant juggernaut carried over this momentum into 2023, with its Q1 comps up 12.6% and adjusted EPS 15% higher.
McDonald’s topped our Q1 EPS by 14% on April 25 and it boosted its guidance in the face of lingering inflation and recession fears. MCD is classified as a Consumer Discretionary firm in terms of S&P 500 categories, alongside Amazon, Tesla, Home Depot, Nike, and others. McDonald’s is clearly much more of a consumer staples firm than any of these other names and it boasts the pricing power to prove it.
McDonald’s has raised prices almost across the board at most locations to help it adapt to the new inflationary environment, with customers shaking off higher costs as they remain competitive. MCD attributed its strong first quarter performance to a “healthy balance of strategic menu price increases and positive traffic growth.”
Zacks estimates call for MCD’s adjusted FY23 earnings to climb 9% and then pop another 10% higher in 2024 to reach $12.04 per share. Some of the bottom-line expansion can be attributed to its corporate restructuring efforts and other initiatives aimed at streamlining high-level operations that McDonald’s executives admitted had become bloated, complex, and redundant over the years.
McDonald’s positive EPS revisions since its April release help it land a Zacks Rank #1 (Strong Buy). Zacks estimates call for another 4.7% global comparable sales growth in 2023, alongside 7% total revenue expansion both this year and next to see it pull in $26.59 billion in FY24.
Other Fundamentals
McDonald’s is one of around 70 S&P 500 Dividend Aristocrats. These are companies that have both paid and raised dividends for at least 25 straight years. MCD’s dividend currently yields 2.06% and it has boosted its payout by 7% annualized over the past five years.
It takes a lot of work to become a Dividend Aristocrat and companies such as McDonald’s will do everything in their power to keep raising payouts no matter what the economy looks like. This is part of the reason why MCD is likely a staple in many balanced portfolios.
MCD’s roughly 800% surge more than doubled the S&P 500’s 356% run and topped its Retail–Restaurants industry's 665% climb. MCD continued to outshine the benchmark over the last five years and it has ripped 65% higher in the last three years vs. the S&P 500’s 43% and its industry’s 47%.
Investors have proven they are more than willing to pay up for the consistency McDonald’s provides. MCD trades at 26.1X forward 12-month earnings vs. the benchmark’s 18.2X. MCD crucially trades at a 14% discount to its own post-covid peaks and just slightly above the Retail– Restaurants’ 25.5X despite its historic outperformance. The Retail–Restaurants industry also currently ranks in the top 17% of over 250 Zacks industries as the space proves highly capable of adapting to inflation and a slowing economy.
Bottom Line
McDonald’s stock recently broke out of a trading range it had been stuck in for months to send MCD to fresh records to start May. MCD is up roughly 12% in 2023, including a 13% run since early March. And McDonald’s is trading well above its 50-day and 200-day moving averages again.
McDonald’s still trades roughly 6% below its average Zacks price target, and around 80% of the 24 brokerage recommendations Zacks has are “Strong Buys” or “Buys,” with no sells. Wall Street and customers know what to expect from MCD and they will keep coming back for more.
Newell Brands is the consumer products firm behind Paper Mate, Elmer's, and much more. The company is coming off a down year in 2022 and it posted a larger-than-projected Q1 FY23 loss on April 28.
Newel’s near-term outlook remains weak as it faces slowing consumer spending, and its earnings revisions are trending in the wrong direction. NWL shares tumbled even deeper after its recent release, with it now down roughly 65% in the last two years.
The Newell Basics
Newell’s portfolio includes Paper Mate, Coleman, Rubbermaid, Sharpie, Yankee Candle, and more. The company posted a strong 2021 amid the post-covid spending boom, with sales up roughly 13%.
But things changed pretty quickly as shoppers began to pull back, with Newell’s 2022 revenue down nearly 11%. NWL’s adjusted earnings also slipped last year.
Newell on April 28 posted disappointing first quarter results that saw its revenue fall 24% YoY, with so-called core sales down 18%. The company also posted an adjusted loss of -$0.06 per share to fall just shy of our Zacks estimate. And NWL’s guidance disappointed Wall Street as NWL sees consumer discretionary spending coming under continued pressure.
Newell’s second quarter Zacks consensus estimate is down 54% since its release at the end of April, with its FY23 and FY24 estimates trending lower as well. The downbeat guidance and negative earnings revisions trends help NWL land a Zacks Rank #5 (Strong Sell) right now.
Zacks estimates call for Newell’s adjusted fiscal 2023 earnings to fall 38% YoY to $0.98 a share on another 10% lower revenue.
Bottom Line
Newell shares have tumbled roughly 65% in the last two years and are down almost the same amount over the past five years, compared to the S&P 500’s 55% climb.
Investors should also know that Newell is in the midst of a CEO transition. “The first quarter marked a pivotal period in the implementation of Project Phoenix and our new operating model is taking shape. I am pleased that Chris Peterson and I have partnered extremely well in ensuring a smooth CEO transition,” retiring chief executive Ravi Saligram said in prepared Q1 remarks.
“I remain optimistic about the future of the company and believe that Chris and the world-class management team we have assembled over the past few years will take Newell to the next level.”
Newell remains a solid firm and it boasts a huge dividend yield at the moment, which is made to look better by its falling share price. Some investors might want to keep NWL on their watchlists, but it is likely best to keep a bit of a distance for now.
Additional content:
2 REITS Likely to Become Winners This Earnings Season
The first-quarter reporting cycle is underway, and investors can be lured by the profits of companies that have already released their quarterly figures. However, rather than adding the stock later to your portfolio, accumulating the ones poised to beat estimates can generate higher gains. This is because an earnings beat usually serves as a catalyst, raising investors’ confidence in the stock and resulting in price appreciation. This is likely to be reflected in the earnings releases of Armada Hoffler Properties, Inc. and Granite Real Estate Investment Trust.
Moreover, rather than fretting too much about inflation and rate hikes, focusing on REITs will be a smart move. This is because with the industry offering the real estate structure for several economic activities, be it real or virtual, there are pockets of strength even in a challenging environment.
For example, for REITs dealing with residential real estate, we note that according to first-quarter data from RealPage Market Analytics, the U.S. apartment market witnessed a recovery in net apartment demand, ending a streak of three consecutive quarters of negative absorption. The market added 19,243 net new renters in the quarter, signaling a return to positive territory.
Occupancy rates continued to slide but at a much lesser degree than before, coming in at 94.7% in March, matching the pre-pandemic decade average. Similarly, in March, same-store effective asking rents for new lease signers increased 0.3%, with effective asking rents up 3.9% year over year, marking the first time below 4% since April 2021.
As far as retail real estate is concerned, it should be noted that per a report from CBRE Group, the U.S. retail real estate market remained resilient in the first quarter of 2023, with the retail availability rate falling 50 basis points (bps) year over year to a new low of 4.8%.
The overall retail rent growth of 2% year over year remained above the 10-year average. Retail space absorption was at 8.6 million square feet for the first quarter of 2023, marking the 10th consecutive quarter of positive retail absorption per the CBRE Group report.
Moreover, per a Cushman & Wakefield report, in the first quarter, industrial demand moved back to “normalized levels”, but it “still powers forward”. Amid high inflation and high-interest rates, slowing consumer demand and uncertainty in the economy, U.S. leasing totals witnessed a 9.4% decline from the prior quarter, with 136.9 million square feet (msf) of deals being signed in the first quarter. However, this total was in sync with the quarterly average achieved pre-pandemic.
There has been an uptick in the overall U.S. industrial vacancy rate, which moved higher by 40 bps in the first quarter to 3.6%. However, the vacancy is still lower than the 10-year historical average of 5.3%. Also, there has been a flight to quality by logistic tenants, with tenants executing 59.1 msf of deals in industrial facilities built since 2020 during the quarter, marking 46.4% of the total. Asking rental rate growth remained high during the quarter. The same increased 3.5% sequentially, reaching another new high of $9.19 per square foot (psf) and surpassing the $9.00-psf mark for the first time, according to the Cushman & Wakefield report.
Meanwhile, per a Cushman & Wakefield report, the U.S. office market demand continues to suffer as office-using employment growth has simmered down amid inflationary pressures, increased interest rates, tight labor markets and economic uncertainty. However, flight-to-quality trends have continued, with 25 U.S. markets reporting positive demand among Class A office buildings.
The Zacks Methodology
Picking the right stock could be difficult unless one knows the proper method. To make the task simple, we rely on the Zacks methodology, combining a Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) and a positive Earnings ESP.
Our proprietary methodology, Earnings ESP, shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Research shows that for stocks with this combination of the Zacks Rank and ESP, chances of a positive earnings surprise are as high as 70%.
Here are two REITs that have the right combination of elements to deliver positive surprises this season. Also, diversification benefits offered by real estate make these prudent investment choices now.
Armada Hoffler Properties currently carries a Zacks Rank of 2 and has an Earnings ESP of + 3.33% for the quarter under review. Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on two occasions and met the same in the remaining two periods, the average beat being 3.21%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Armada Hoffler Properties is engaged in developing, building, acquiring and managing high-quality, institutional-grade office, retail and multifamily properties located mainly in the Mid-Atlantic and Southeastern United States. Apart from developing and building properties for its account, AHH offers development and general contracting construction services to third-party clients.
In the first quarter, Armada Hoffler Properties is expected to have benefited from its diversified portfolio. The Zacks Consensus Estimate of $56.39 million for quarterly revenues suggests a 3.20% increase year over year. The consensus estimate for quarterly funds from operations (FFO) per share of 30 cents calls for a 7.14% year-over-year rise.
Armada Hoffler Properties is scheduled to announce first-quarter figures on May 9 before market open.
Granite Real Estate Investment Trust carries a Zacks Rank of 3 and has an Earnings ESP of +1.12% for the to-be-reported quarter at present. In the last four quarters, the REIT surpassed the Zacks Consensus Estimate on three occasions and met the same on the other, the average beat being 1.19%. You can see the complete list of today’s Zacks #1 Rank stocks here.
A Canadian-based REIT — Granite — is engaged in the acquisition, development, ownership and management of logistics, warehouse and industrial properties in North America and Europe.
In the first quarter, Granite, with its high-quality portfolio, is likely to have gained from the still healthy deal volume, low vacancy levels and rent growth in the industrial real estate market. The Zacks Consensus Estimate for first-quarter FFO per share has remained unrevised at 89 cents over the past month. However, it implies 7.23% year-over-year growth.
Granite is set to release earnings results on May 10 after market close.
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.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index.Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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McDonald's and Newell Brands have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – May 5, 2023 – Zacks Equity Research shares McDonald’s (MCD - Free Report) as the Bull of the Day and Newell Brands (NWL - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on CBRE Group (CBRE - Free Report) , Armada Hoffler Properties, Inc. (AHH - Free Report) and Granite Real Estate Investment Trust (GRP.U - Free Report) .
Here is a synopsis of all five stocks.
Bull of the Day:
McDonald’s stock soared to fresh all-time highs to start May as investors dive into the safety and stability that the global fast-food power provides during an increasingly uncertain economy. Wall Street is also cheering on MCD’s corporate restructuring, Q1 earnings results, and more.
McDonald’s boasts an impressive track record that’s seen it power through multiple recessions and crush the market and many fellow historic corporate giants such as Walmart, Coca-Cola, and Disney over the last 25 years.
The Dividend Aristocrat is also prepared to shine as digital apps shake up the restaurant industry. In fact, the McDonald’s app was downloaded by more people globally in 2022 than Uber Eats and DoorDash combined—and it left all other restaurant chains in the dust.
A Beacon of Stability & Evolution
McDonald’s hasn’t needed an introduction almost anywhere on the planet in decades. MCD’s footprint includes around 40,000 locations in over 100 countries, with roughly 95% of its stores owned by franchisees.
The hamburger chain slowly tweaks its menu over the years, while keeping it remarkably consistent. Customers keep coming to McDonald’s, in large part, because they know exactly what they are going to get, which is something Wall Street loves about MCD stock too.
The McDonald’s brand consistently ranks in the top 10 to 15 globally alongside the likes of Apple, Disney, Coca-Cola and Nike. Rarely do you find any direct McDonald’s competitors near the top of these lists, which tells investors a ton. MCD has remained unwaveringly itself for decades while also slowly and subtly adapting and evolving.
McDonald’s hasn’t lost a step with older generations, while catering to younger people by rolling out digital point-of-sale kiosks, adding new on-trend menu items, and completely embracing mobile ordering and delivery. The Chicago-based company said recently that its efforts to speed up ordering and improve the customer experience are helping MCD eat away market share from rivals.
Despite the supposed health-food craze, the fast-food pioneer remains at the forefront of brand building and even app development. The McDonald’s app was downloaded 127 million times worldwide in 2022, according to Apptopia to crush Uber Eats’ 60 million, DoorDash’s 42 million and Starbucks’ 34 million.
Recent Growth and Outlook
McDonald’s posted 10.9% global comparable sales growth in 2022, which came on top of 17% YoY expansion in the key metric in 2021. MCD’s adjusted earnings climbed roughly 9% and 50%, respectively during this same stretch. The restaurant juggernaut carried over this momentum into 2023, with its Q1 comps up 12.6% and adjusted EPS 15% higher.
McDonald’s topped our Q1 EPS by 14% on April 25 and it boosted its guidance in the face of lingering inflation and recession fears. MCD is classified as a Consumer Discretionary firm in terms of S&P 500 categories, alongside Amazon, Tesla, Home Depot, Nike, and others. McDonald’s is clearly much more of a consumer staples firm than any of these other names and it boasts the pricing power to prove it.
McDonald’s has raised prices almost across the board at most locations to help it adapt to the new inflationary environment, with customers shaking off higher costs as they remain competitive. MCD attributed its strong first quarter performance to a “healthy balance of strategic menu price increases and positive traffic growth.”
Zacks estimates call for MCD’s adjusted FY23 earnings to climb 9% and then pop another 10% higher in 2024 to reach $12.04 per share. Some of the bottom-line expansion can be attributed to its corporate restructuring efforts and other initiatives aimed at streamlining high-level operations that McDonald’s executives admitted had become bloated, complex, and redundant over the years.
McDonald’s positive EPS revisions since its April release help it land a Zacks Rank #1 (Strong Buy). Zacks estimates call for another 4.7% global comparable sales growth in 2023, alongside 7% total revenue expansion both this year and next to see it pull in $26.59 billion in FY24.
Other Fundamentals
McDonald’s is one of around 70 S&P 500 Dividend Aristocrats. These are companies that have both paid and raised dividends for at least 25 straight years. MCD’s dividend currently yields 2.06% and it has boosted its payout by 7% annualized over the past five years.
It takes a lot of work to become a Dividend Aristocrat and companies such as McDonald’s will do everything in their power to keep raising payouts no matter what the economy looks like. This is part of the reason why MCD is likely a staple in many balanced portfolios.
MCD’s roughly 800% surge more than doubled the S&P 500’s 356% run and topped its Retail–Restaurants industry's 665% climb. MCD continued to outshine the benchmark over the last five years and it has ripped 65% higher in the last three years vs. the S&P 500’s 43% and its industry’s 47%.
Investors have proven they are more than willing to pay up for the consistency McDonald’s provides. MCD trades at 26.1X forward 12-month earnings vs. the benchmark’s 18.2X. MCD crucially trades at a 14% discount to its own post-covid peaks and just slightly above the Retail– Restaurants’ 25.5X despite its historic outperformance. The Retail–Restaurants industry also currently ranks in the top 17% of over 250 Zacks industries as the space proves highly capable of adapting to inflation and a slowing economy.
Bottom Line
McDonald’s stock recently broke out of a trading range it had been stuck in for months to send MCD to fresh records to start May. MCD is up roughly 12% in 2023, including a 13% run since early March. And McDonald’s is trading well above its 50-day and 200-day moving averages again.
McDonald’s still trades roughly 6% below its average Zacks price target, and around 80% of the 24 brokerage recommendations Zacks has are “Strong Buys” or “Buys,” with no sells. Wall Street and customers know what to expect from MCD and they will keep coming back for more.
Bear of the Day:
Newell Brands is the consumer products firm behind Paper Mate, Elmer's, and much more. The company is coming off a down year in 2022 and it posted a larger-than-projected Q1 FY23 loss on April 28.
Newel’s near-term outlook remains weak as it faces slowing consumer spending, and its earnings revisions are trending in the wrong direction. NWL shares tumbled even deeper after its recent release, with it now down roughly 65% in the last two years.
The Newell Basics
Newell’s portfolio includes Paper Mate, Coleman, Rubbermaid, Sharpie, Yankee Candle, and more. The company posted a strong 2021 amid the post-covid spending boom, with sales up roughly 13%.
But things changed pretty quickly as shoppers began to pull back, with Newell’s 2022 revenue down nearly 11%. NWL’s adjusted earnings also slipped last year.
Newell on April 28 posted disappointing first quarter results that saw its revenue fall 24% YoY, with so-called core sales down 18%. The company also posted an adjusted loss of -$0.06 per share to fall just shy of our Zacks estimate. And NWL’s guidance disappointed Wall Street as NWL sees consumer discretionary spending coming under continued pressure.
Newell’s second quarter Zacks consensus estimate is down 54% since its release at the end of April, with its FY23 and FY24 estimates trending lower as well. The downbeat guidance and negative earnings revisions trends help NWL land a Zacks Rank #5 (Strong Sell) right now.
Zacks estimates call for Newell’s adjusted fiscal 2023 earnings to fall 38% YoY to $0.98 a share on another 10% lower revenue.
Bottom Line
Newell shares have tumbled roughly 65% in the last two years and are down almost the same amount over the past five years, compared to the S&P 500’s 55% climb.
Investors should also know that Newell is in the midst of a CEO transition. “The first quarter marked a pivotal period in the implementation of Project Phoenix and our new operating model is taking shape. I am pleased that Chris Peterson and I have partnered extremely well in ensuring a smooth CEO transition,” retiring chief executive Ravi Saligram said in prepared Q1 remarks.
“I remain optimistic about the future of the company and believe that Chris and the world-class management team we have assembled over the past few years will take Newell to the next level.”
Newell remains a solid firm and it boasts a huge dividend yield at the moment, which is made to look better by its falling share price. Some investors might want to keep NWL on their watchlists, but it is likely best to keep a bit of a distance for now.
Additional content:
2 REITS Likely to Become Winners This Earnings Season
The first-quarter reporting cycle is underway, and investors can be lured by the profits of companies that have already released their quarterly figures. However, rather than adding the stock later to your portfolio, accumulating the ones poised to beat estimates can generate higher gains. This is because an earnings beat usually serves as a catalyst, raising investors’ confidence in the stock and resulting in price appreciation. This is likely to be reflected in the earnings releases of Armada Hoffler Properties, Inc. and Granite Real Estate Investment Trust.
Moreover, rather than fretting too much about inflation and rate hikes, focusing on REITs will be a smart move. This is because with the industry offering the real estate structure for several economic activities, be it real or virtual, there are pockets of strength even in a challenging environment.
For example, for REITs dealing with residential real estate, we note that according to first-quarter data from RealPage Market Analytics, the U.S. apartment market witnessed a recovery in net apartment demand, ending a streak of three consecutive quarters of negative absorption. The market added 19,243 net new renters in the quarter, signaling a return to positive territory.
Occupancy rates continued to slide but at a much lesser degree than before, coming in at 94.7% in March, matching the pre-pandemic decade average. Similarly, in March, same-store effective asking rents for new lease signers increased 0.3%, with effective asking rents up 3.9% year over year, marking the first time below 4% since April 2021.
As far as retail real estate is concerned, it should be noted that per a report from CBRE Group, the U.S. retail real estate market remained resilient in the first quarter of 2023, with the retail availability rate falling 50 basis points (bps) year over year to a new low of 4.8%.
The overall retail rent growth of 2% year over year remained above the 10-year average. Retail space absorption was at 8.6 million square feet for the first quarter of 2023, marking the 10th consecutive quarter of positive retail absorption per the CBRE Group report.
Moreover, per a Cushman & Wakefield report, in the first quarter, industrial demand moved back to “normalized levels”, but it “still powers forward”. Amid high inflation and high-interest rates, slowing consumer demand and uncertainty in the economy, U.S. leasing totals witnessed a 9.4% decline from the prior quarter, with 136.9 million square feet (msf) of deals being signed in the first quarter. However, this total was in sync with the quarterly average achieved pre-pandemic.
There has been an uptick in the overall U.S. industrial vacancy rate, which moved higher by 40 bps in the first quarter to 3.6%. However, the vacancy is still lower than the 10-year historical average of 5.3%. Also, there has been a flight to quality by logistic tenants, with tenants executing 59.1 msf of deals in industrial facilities built since 2020 during the quarter, marking 46.4% of the total. Asking rental rate growth remained high during the quarter. The same increased 3.5% sequentially, reaching another new high of $9.19 per square foot (psf) and surpassing the $9.00-psf mark for the first time, according to the Cushman & Wakefield report.
Meanwhile, per a Cushman & Wakefield report, the U.S. office market demand continues to suffer as office-using employment growth has simmered down amid inflationary pressures, increased interest rates, tight labor markets and economic uncertainty. However, flight-to-quality trends have continued, with 25 U.S. markets reporting positive demand among Class A office buildings.
The Zacks Methodology
Picking the right stock could be difficult unless one knows the proper method. To make the task simple, we rely on the Zacks methodology, combining a Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) and a positive Earnings ESP.
Our proprietary methodology, Earnings ESP, shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Research shows that for stocks with this combination of the Zacks Rank and ESP, chances of a positive earnings surprise are as high as 70%.
Here are two REITs that have the right combination of elements to deliver positive surprises this season. Also, diversification benefits offered by real estate make these prudent investment choices now.
Armada Hoffler Properties currently carries a Zacks Rank of 2 and has an Earnings ESP of + 3.33% for the quarter under review. Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on two occasions and met the same in the remaining two periods, the average beat being 3.21%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Armada Hoffler Properties, Inc. price-eps-surprise | Armada Hoffler Properties, Inc. Quote
Armada Hoffler Properties is engaged in developing, building, acquiring and managing high-quality, institutional-grade office, retail and multifamily properties located mainly in the Mid-Atlantic and Southeastern United States. Apart from developing and building properties for its account, AHH offers development and general contracting construction services to third-party clients.
In the first quarter, Armada Hoffler Properties is expected to have benefited from its diversified portfolio. The Zacks Consensus Estimate of $56.39 million for quarterly revenues suggests a 3.20% increase year over year. The consensus estimate for quarterly funds from operations (FFO) per share of 30 cents calls for a 7.14% year-over-year rise.
Armada Hoffler Properties is scheduled to announce first-quarter figures on May 9 before market open.
Granite Real Estate Investment Trust carries a Zacks Rank of 3 and has an Earnings ESP of +1.12% for the to-be-reported quarter at present. In the last four quarters, the REIT surpassed the Zacks Consensus Estimate on three occasions and met the same on the other, the average beat being 1.19%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Granite Real Estate Inc. price-eps-surprise | Granite Real Estate Inc. Quote
A Canadian-based REIT — Granite — is engaged in the acquisition, development, ownership and management of logistics, warehouse and industrial properties in North America and Europe.
In the first quarter, Granite, with its high-quality portfolio, is likely to have gained from the still healthy deal volume, low vacancy levels and rent growth in the industrial real estate market. The Zacks Consensus Estimate for first-quarter FFO per share has remained unrevised at 89 cents over the past month. However, it implies 7.23% year-over-year growth.
Granite is set to release earnings results on May 10 after market close.
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.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index.Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.