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What's in the Cards for Ventas (VTR) This Earnings Season?

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Healthcare real estate investment trust (REIT) Ventas, Inc. (VTR - Free Report) is scheduled to report fourth-quarter and 2017 results on Feb 9, before the market opens. The company’s revenues are anticipated to be up year over year while its funds from operations (FFO) are expected to remain stable.

Last quarter, this Chicago, IL-based healthcare REIT delivered in-line results. The results reflected improved property performance and accretive investments.

Further, Ventas posted an average positive surprise of 0.73% in the trailing four quarters, surpassing estimates twice and posting in-line results in the other occasions. The graph below depicts this surprise history:

Ventas, Inc. Price and EPS Surprise

Shares of Ventas have underperformed the industry in the past three months. While the company’s shares have lost 17.8%, the industry has witnessed a decline of 7%.

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

Earnings Whispers

Our proven model cannot conclusively predict if Ventas will beat the Zacks Consensus Estimate this time. That’s because it doesn’t have the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The company has an Earnings ESP of +0.07%.

Zacks Rank: Ventas carries a Zacks Rank #5 (Strong sell), which reduces the predictive power of ESP.

Factors That Might Influence Q4 Results

Ventas is anticipated to benefit in the to-be-reported quarter from increasing healthcare spending and aging population. In fact, according to the Census Bureau, the number of citizens with more than 85 years of age is estimated to reach 8.7 million by 2030.

In addition, Ventas is focusing on achieving an optimum mix of healthcare real estate assets. The company has made sound efforts to expand its portfolio in the medical office life science real estate market. Such investments will likely help the company capitalize on the growing health-care-driven research and development, supported by top-tier research universities.

Also, Ventas is aggressively shedding its skilled nursing facilities (SNFs) portfolio. In the third quarter, the company finished the first phase of disposal of 36 SNFs. Companies are reducing exposure to this asset class because SNFs are becoming more vulnerable to top-line pressure due to changes in medical billing procedure. Following this sale, Ventas will be able to bring down its net operating income (NOI) from SNFs to just 1% of its aggregate NOI. Thus, such moves are anticipated to support the company’s operating margin in the quarter under review.  

Nonetheless, oversupply in some markets has burdened the performance of Ventas’s senior housing assets. Since this curtails the landlords’ pricing power and limits growth in occupancy level, we expect the prevalent oversupply situation to impact the company’s fourth-quarter numbers.

The Zacks Consensus Estimate of $213 million for triple net-leased rental income reflects a sequential rise from the prior-quarter figure of $212 million. Further, the Zacks Consensus Estimate for office building and other services revenues came in at $3.25 million, reflecting a 1.6% rise sequentially.

However, the Zacks Consensus Estimate for rental income from office building is currently pegged at $190 million, reflecting no change from the prior quarter figure.

Prior to fourth-quarter earnings release, there is lack of any solid catalyst for raising optimism about the company’s business activities and prospects. As such, the Zacks Consensus Estimate for FFO per share in the soon-to-be-reported quarter remained unchanged at $1.14, over the past month. Also, this indicates no change year over year.

The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $878.6 million, indicating a year-over-year rise of 0.32%.

For full-year 2017, the Zacks Consensus Estimate for revenues stands at $3.53 billion, reflecting a year-over-year rise of 2.6%. The consensus estimate for FFO per share is $4.15, reflecting a year-over-year increase of 0.48%. Management expects FFO per share in the range of $4.13-$4.16.

Stocks That Warrant a Look

Here are a few stocks in the REIT space that you may want to consider as our model shows these have the right combination of elements to come up with a positive surprise this time around:

CubeSmart (CUBE - Free Report) is slated to release fourth-quarter results on Feb 15. The stock has an Earnings ESP of +1.10% and a Zacks Rank #3. You can the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Diamondrock Hospitality Co. (DRH - Free Report) is scheduled to report quarterly numbers on Feb 26. The stock has an Earnings ESP of +4.76% and a Zacks Rank #3.

JLL (JLL - Free Report) , slated to release quarterly numbers on Feb 7, has an Earnings ESP of +1.83% and a Zacks Rank #2 (Buy).

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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