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Is a Beat in Store for Public Storage (PSA) in Q1 Earnings?

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Public Storage (PSA - Free Report) is slated to report first-quarter 2017 results on Apr 26, after the market closes.

Last quarter, this self-storage real estate investment trust (“REIT”) recorded a positive surprise of 0.76%. Results reflected an improvement in net operating income (NOI) from both same-store and non-same store facilities.

The company has a mixed surprise history. In fact, the company exceeded estimates in one occasion, met in another and missed in the rest two, in the trailing four quarters, resulting in an average negative surprise of 1.26%. This is depicted in the graph below.

Public Storage Price and EPS Surprise

Public Storage Price and EPS Surprise | Public Storage Quote

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

Why a Likely Positive Surprise?

Our proven model shows that Public Storage is likely to beat on estimates because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) to beat estimates, and Public Storage has the right mix.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks ESP: The Earnings ESP, which represents the percentage difference between the Most Accurate estimate of $2.43 and the Zacks Consensus Estimate of $2.42, is +0.41%. This is a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: Public Storage’s Zacks Rank #3, when combined with a positive ESP, makes us reasonably confident of a positive surprise this season.

Conversely, we caution against stocks with Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

What's Driving the Better-than-Expected Earnings?

Public Storage has a sturdy brand image and is a recognized name in the self-storage industry in the U.S. Its solid presence in key cities serves as a major growth driver. Acquisition and expansion initiatives are likely to propagate growth. Further, the company managed to create a significant presence in the European markets through the Shurgard Storage Centers buyout.

In addition, the self-storage industry is expected to continue experiencing solid demand backed by favorable demographic changes and events like marriages, shifting, death and even divorce.

As such, in the to-be-reported quarter, the company remains well poised to experience growth in same-store revenues, backed by a rise in realized annual rent per occupied square foot. However, the company has been experiencing rising supply in some of its markets, which is likely to limit any robust growth in revenues in the quarter.

Moreover, shares of Public Storage outperformed the Zacks categorized REIT and Equity Trust – Other industry over the past six months. During this time period, while the company’s shares moved up 8.4%, the industry ascended 4.7%.

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) , slated 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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