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What's in Store for UDR Inc. (UDR) this Earnings Season?

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UDR Inc. (UDR - Free Report) is slated to report first-quarter 2017 results on Apr 24, after the market closes.

Last quarter, the Denver, CO-based residential real estate investment trust (“REIT”) delivered a positive surprise with respect to funds from operations (FFO) per share of 2.22%. Results were backed by better-than-expected growth in revenues.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate in one occasion and met estimates in the other three, with an average beat of around 0.6%. The graph below depicts this surprise history.

For the first quarter, the company projects FFO per share in the range of 44–46 cents. The Zacks Consensus Estimate for the same is currently pegged at 45 cents.

Let’s see how things are shaping up for UDR prior to this announcement.

Factors to Consider

UDR Inc. has a vast experience in the residential real estate market. The company’s superior portfolio in targeted U.S. markets and disciplined capital allocation are likely to drive results in the to-be-reported quarter.

The company is anticipated to benefit from favorable demographic trends. There is a demand for rental apartments from both new millennial households and empty nesters. Along with this, the healthy job market is likely to drive demand for apartments.

However, we remain apprehensive about UDR’s performance as the company has been dealing with elevated deliveries in a number of its markets. In fact, San Francisco, Los Angeles and New York, which comprise a significant portion of the company’s same-store net operating income (NOI), remain choppy mainly due to concentrated new supply and elevated concession levels. This remains a concern as elevated levels of supply curtail a landlord’s ability to demand higher rents and result in lesser absorption.

Hence, prior to the first-quarter earnings release, there is lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the to-be-reported quarter remained unchanged at 45 cents over the past 60 days.

Further, over the past three months, shares of UDR underperformed the Zacks categorized REIT and Equity Trust – Residential industry. While UDR logged in a gain of 1.3%, the industry climbed 3.0% over this period.

Earnings Whispers

Our proven model does not conclusively show that UDR 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 at least 3 (Hold) for this to happen. However, that is not the case here as you will see below.

Zacks ESP: The Earnings ESP for UDR is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 45 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: UDR’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.

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.

Stocks That Warrant a Look

Here are a few 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:

Piedmont Office Realty Trust, Inc. (PDM - Free Report) , slated to release first-quarter results on May 2, has an Earnings ESP of +2.33% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

HCP Inc. (HCP - Free Report) , scheduled to release earnings on May 2, has an Earnings ESP of +2.08% and a Zacks Rank #3.

EPR Properties (EPR - Free Report) , scheduled to release earnings on May 2, has an Earnings ESP of +0.84% and a Zacks Rank #3.

Note: All EPS numbers presented in this write up represent funds from operations (FFO) per share. 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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