Essex Property Trust, Inc. (ESS - Free Report) is slated to report third-quarter 2016 results on Oct 27, after the market closes.
This residential real estate investment trust (“REIT”) has a decent earnings surprise history. It reported a positive surprise of 1.48% in the prior quarter and has, in fact, beaten the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive surprise of 1.94%.
The company projects core FFO per share in the range of $2.73–$2.79 for the third quarter. The Zacks Consensus Estimate for the same is currently pegged at $2.76.
Is the company poised for a winning quarter? Let’s see how things are shaping up prior to this announcement.
Factors to Consider
Essex has a strong property base and a sturdy balance sheet. In fact, it also enjoys a solid scale in the West Coast market. Moreover, demographic growth continues to be robust in the young adult age cohort, which has a higher propensity to rent. These are expected to drive demand for apartments in the company’s markets in the to-be-reported quarter. Further, apartments in regions of technology and innovation are expected to produce above average rent growth.
However, per an Axiometrics study, the national apartment market has been experiencing moderation over the past few quarters, after posting robust results in 2014 and 2015, thanks to the new supply in the high-rent metros. Essex, too, witnessed lower-than-expected revenue growth in the second quarter, mainly in the San Jose and San Francisco metro areas, resulting from high-apartment deliveries in 2016. This trend is expected to persist in the quarter under review also.
As such, this high supply is anticipated to restrict the company’s growth and hinder increase in rent and occupancies in the to-be-reported quarter.
Our proven model does not conclusively show that Essex Property will beat on earnings this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. However, that is not the case here as you will see below.
Zacks ESP: The Earnings ESP, which represents the percentage difference between the Most Accurate estimate of $2.75 and the Zacks Consensus Estimate of $2.76, is -0.36%.
Zacks Rank: Essex Property currently has a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s negative ESP makes our surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Stocks That Warrant a Look
Here are a few other stocks in the REIT sector that you may want to consider, as our model shows that they have the right combination of elements to report a positive surprise this quarter:
CubeSmart (CUBE - Free Report) has an Earnings ESP of +2.78% and a Zacks Rank #2. The company will release results on Oct 27. You can see the complete list of today’s Zacks #1 Rank stocks here.
Mid-America Apartment Communities, Inc. (MAA - Free Report) has an Earnings ESP of +0.67% and a Zacks Rank #3. The company will report results on Oct 27.
Post Properties Inc. has an Earnings ESP of +1.24% and a Zacks Rank #2. The company will declare results on Oct 31.
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. All earnings per share numbers presented in this write up represent FFO per share.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>