We are in the first full week of the Q1 reporting cycle, and only a handful of the S&P 500 players have released their earnings numbers, so far. Notably, banking giants kicked off the season on an impressive note, courtesy improved earnings and revenues.
Per our latest Earnings Preview, total earnings for five of the 98 Finance Sector companies on the S&P 500 (accounting 23.7% of the total market cap), that have reported earnings so far, have climbed 20.4% year over year on 6.9% higher revenues.
Further, for the first quarter, as a whole, earnings of the finance sector, which includes REITs too, are expected to be up 22.7% year over year on 4.7% higher revenues.
While the banking sector is already bustling with activity, we have a handful of REITs reporting earnings this week. Among these are Crown Castle International Corp. (CCI - Free Report) and SL Green Realty Corp. (SLG - Free Report) which are scheduled to release results on Apr 18, after the market closes.
Admittedly, rate hike and cautious approach of investors have affected returns from this industry, so far, this year. However, with underlying asset categories and the location of properties playing a crucial role in determining REITs’ performance, not all players in the space are equally poised to excel or fall behind this season.
Therefore, let’s have a close look at the factors that will impact the above-mentioned REITs’ first-quarter results.
Crown Castle International Corp.
This Houston-based REIT, engaged in the operation of wireless communication towers in the United States, is well poised to benefit from the high level of investment activity of its key customers. The company’s portfolio of assets is expected to witness decent demand in the quarter to be reported. Also, leasing activity across towers, small cells and fiber solutions is likely to remain strong.
Moreover, the company’s continued efforts in repositioning itself from being a tower company to a fiber provider (focused on the small cell opportunity) look impressive. In 2017, it fortified its portfolio with the acquisitions of FiberNet, Wilcon and Lightower that operate in top U.S. markets. These markets have been experiencing high demand for network investment from the company’s customers.
The Zacks Consensus Estimate for the company’s site rental revenues for towers is currently pegged at $747 million for the first quarter, reflecting a projected increase of 0.8% sequentially. Site rental revenues for fiber are projected at $392 million, denoting an estimated jump of 26.5%.
Further, the Zacks Consensus Estimate for first-quarter revenues is $1.31 billion, indicating year-over-year projected growth of 29.0%. The Zacks Consensus Estimate for funds from operations (FFO) per share for the quarter is pegged at $1.34, reflecting a rise of around 8.1%.
However, Crown Castle competes in a highly competitive wireless tower operator industry, with incumbents like American Tower Corp. (AMT - Free Report) and SBA Communications Corp. (SBAC - Free Report) . In addition, frequent changes in demand for infrastructure support and network services might flare up volatility for Crown Castle’s revenues.
Our proven model cannot conclusively predict if Crown Castle will likely beat the Zacks Consensus Estimate this time as it has an Earnings ESP of 0.00% and a Zacks Rank #3 (Hold).
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
(Read more: Crown Castle to Report Q1 Earnings: What's in Store?)
Over the trailing four quarters, Crown Castle delivered an average positive surprise of 5.67% in terms of FFO per share. This is depicted in the graph below:
SL Green Realty Corp.
The New York City's leading office landlord has been enhancing its capacity to offer office space through an opportunistic investment policy. In addition, its leasing activity is expected to remain decent amid improving economy and job market environment.
Nonetheless, the company faces intense competition from developers, owners and operators of office properties, and other commercial real estate which curbs its pricing power. Furthermore, elevated supply of office space has been adding to its woes.
Amid these, the Zacks Consensus Estimate for first-quarter net rental revenues is currently pegged at $262 million, reflecting a 1.1% decline from the previous-quarter figure. However, the Zacks Consensus Estimate for investment income is projected at $48.4 million, indicating 7.2% rise sequentially.
Finally, the Zacks Consensus Estimate for revenues is pegged at $268.7 million, 4.5% lower than the prior-year quarter. The FFO per share is projected at $1.65, reflecting a 5.1% improvement from the year-earlier quarter.
In addition to the above, our quantitative model predicts that the chances of a positive surprise for SL Green are low. The stock has an Earnings ESP of -0.23% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
(Read more: Why is Earnings Beat Unlikely for SL Green in Q1)
Over the preceding four quarters, the company surpassed the Zacks Consensus Estimate in one occasion, missed in another and met in the remaining two, delivering an average positive surprise of around 1.2%. The graph below depicts this surprise history:
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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