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Vornado Realty (VNO) to Post Q2 Earnings: What's in Store?

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Vornado Realty Trust (VNO - Free Report) is scheduled to report second-quarter 2017 results on Jul 31, after the market closes.

In the prior quarter, this NY-based real estate investment trust (“REIT”) generated a negative surprise of 13.6% in terms of funds from operations (“FFO”) per share. Results reflected a fall in occupancy in the Washington DC portfolio.

Moreover, Vornado does not have an impressive surprise history. In fact, in each occasions, over the trailing four quarters, the company missed the Zacks Consensus Estimate with an average negative surprise of 8.4%. This is depicted in the graph below:

Vornado Realty Trust Price and EPS Surprise

Vornado Realty Trust Price and EPS Surprise | Vornado Realty Trust Quote

Let’s see how things have shaped up for this announcement.

Factors to Consider

Vornado’s high quality office and retail properties are concentrated in New York City. Also, the company has premier assets in both Chicago and San Francisco. These are high-rent and high barrier-to-entry geographic markets. Additionally, the company has a diversified tenant base.

However, as part of portfolio-repositioning efforts, Vornado has been aggressively disposing its assets. Though such efforts to streamline its business are commendable, the earnings dilutive effects of these moves cannot be bypassed.

Also, the company faces intense competition from developers, owners and operators of office properties, and other commercial real estate in its markets. Amid this, Vornado’s pricing power and occupancy gains are likely to remain limited.

In addition, over the past seven days, the Zacks Consensus Estimate for second-quarter 2017 FFO per share moved south nearly 1.6% to $1.26, reflecting analysts’ bearish sentiments on the stock.

Earnings Whispers

Our proven model does not conclusively show that Vornado will likely beat estimates 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.

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 $1.27 and the Zacks Consensus Estimate of $1.26, is 0.79%. This is a meaningful and leading indicator of a surprise in the quarter.

Zacks Rank: Vornado currently has a Zacks Rank #5 (Strong Sell), which actually reduces the predictive power of ESP.

It should be noted that 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 space that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this time around:

CyrusOne Inc. (CONE - Free Report) , likely to release earnings on Aug 2, has an Earnings ESP of +2.70% and a Zacks Rank #2.

Piedmont Office Realty Trust, Inc. (PDM - Free Report) , expected to release earnings on Aug 2, has an Earnings ESP of +2.27% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

AvalonBay Communities, Inc. (AVB - Free Report) , likely to release second-quarter numbers on Aug 2, has an Earnings ESP of +0.94% 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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