The majority of the companies from the real estate investment trust (“REIT”) sector have already reported results for the quarter ending on Dec 31, 2016. So far, earnings reports of the REITs (which own properties ranging from data centers to residential properties¬) have not been as dismal as anticipated given Trump’s unexpected victory, a spike in 10-year U.S. Treasury rates and an unstable global market.
With the fading away of fiery pre-election rhetoric and gradual unfolding of the newly-elected Republican policies, the market mayhem gradually petered out. Also, the REIT sector, which is vulnerable to rate hike and increase in Treasury yield, has also coped well with some sops provided by the government.
In fact, in mid-December, the U.S. Federal Reserve raised the key interest rates by 25 basis points to between 0.50–0.75%, the second hike since Dec 2015. But, interest rates are still extremely low. According to the National Association of Real Estate Investment Trusts (“NAREIT”), despite the rate hike, performance of the REITs continues to strengthen, with robust equity issuance and low debt ratios.
Secondly, the plan of the new government to borrow and spend a huge amount of money on infrastructure projects is anticipated to boost the gross domestic product. The REIT sector is surely going to benefit from this move.
Finally, a tightening monetary policy indicates economic robustness, which further raises the possibility of an upward revision in rent and occupancy levels. This, in turn, will lead to robust net operating income expansion. All these factors benefit REITs and may neutralize the impact of a rate hike.
Given these broader factors, the REIT space appears to be modestly placed. It is the right time to pick some stocks from this sector, which are yet to report results for the quarter ending Dec 31, 2016 and are likely to beat estimates. An earnings beat serves as a catalyst, boosting investors’ confidence in a stock. This, in turn, leads to price appreciation and ensures more gains from one’s investments.
The Zacks Methodology
Figuring out the right stock could be quite tough unless one applies the proper method. The Zacks methodology makes the task simple, combining a favorable Zacks Rank – 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. And research shows that for stocks with this combination of rank and ESP, chances of a positive earnings surprise are as high as 70%.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here are three REITs that have the right combination of elements to deliver an earnings beat when they release their fourth-quarter results:
EPR Properties (EPR - Free Report) has a Zacks Rank #2 and an Earnings ESP of +0.81%. The Zacks Consensus Estimate for the fourth-quarter 2016 is pegged at $1.24 per share. The company delivered positive earnings surprises in three out of the four trailing quarters, with an average beat of 0.85%.
Based in Kansas City, MO, EPR Properties is a retail REIT that invests in three primary segments: Entertainment, Recreation and Education.
EPR Properties is expected to release results on Feb 28.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Lexington Realty Trust (LXP - Free Report) carries a Zacks Rank #3 and has an Earnings ESP of +4.17%. The Zacks Consensus Estimate for fourth-quarter 2016 is pegged at 24 cents per share. The company posted an average positive surprise of 7.48% over the trailing four quarters.
New York-based Lexington Realty is engaged in the ownership, operation, management of a diverse portfolio of real properties.
Lexington Realty is expected to report results on Feb 23.
STORE Capital Corporation (STOR - Free Report) has a Zacks Rank #3 and an Earnings ESP of + 2.50%. The Zacks Consensus Estimate for fourth-quarter 2016 is 40 cents per share. The company delivered positive surprises in the four trailing quarters, with an average beat of 3.27%.
Scottsdale, AZ -based STORE Capital is engaged in the acquisition, investment and management of single-tenant real estate properties.
It is expected to report results on Feb 23.
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