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Key Factors to Impact Equity Residential (EQR) Q2 Earnings

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Equity Residential (EQR - Free Report) is slated to report second-quarter 2018 results on Jul 24, after market close. The company is expected to experience growth in revenues and funds from operations (FFO) per share in the upcoming quarterly results.

In the last reported quarter, this Chicago, IL-based residential real estate investment trust (REIT) came up with a lower-than-expected performance in terms of FFO per share. However, over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in two occasions, met in another and missed in the other, with an average positive surprise of around 0.62%. The graph below depicts this surprise history:

Equity Residential Price and EPS Surprise
 

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

Factors at Play

Equity Residential has been striving to reposition its portfolio in high barrier-to-entry/core markets. The company’s current focus is on the acquisition and development of assets primarily in six core coastal metropolitan areas — Boston, New York, Washington DC, Southern California (including Los Angeles, Orange County and San Diego), San Francisco and Seattle.

The company is poised for expansion amid economic recovery and job-market growth. Particularly, favorable demographics, lifestyle transformation and creation of new households amid improving economy are likely to spur demand for the company’s properties in the near term.

Equity Residential projects normalized FFO per share at 77-81 cents for second-quarter 2018. Results are likely to reflect positive impact from growth in same-store NOI and lower corporate overhead.

The Zacks Consensus Estimate for FFO per share is currently pegged at 80 cents, which indicates a projected increase of 3.9% year over year. Moreover, the Zacks Consensus Estimate for the company’s revenues is pegged at $637.9 million, reflecting expected growth of nearly 4.2% year over year.

However, the latest report from the real estate technology and analytics firm, RealPage, Inc (RP - Free Report) , suggests that rent growth in the U.S. apartment market is slowing. In fact, with several markets experiencing flat rents, U.S. apartment rents increased at an annual pace of just 2.3% as of mid-2018, marking its slowest pace in eight years. While a mid-2018 occupancy level of 95.0% is still healthy, the deceleration in rent growth suggests that a competitive leasing environment is fast building up amid elevated supply, and curbing landlords’ pricing power.

Equity Residential too has been experiencing substantial new supply across a number of its markets. High supply is anticipated to continue putting pressure on new lease rates, occupancy, as well as retention. Further, there is increased concession activity amid higher supply, which remains another concern.

In addition, the company’s activities during the quarter were inadequate to raise analysts’ optimism. Consequently, the Zacks Consensus Estimate remained unchanged over the last 30 days.

Here is what our quantitative model predicts:

Equity Residential has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing 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.
 
Earnings ESP: The Earnings ESP for Equity Residential is +0.17%.

Zacks Rank: Equity Residential carries a Zacks Rank of 3.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other 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 these have the right combination of elements to report a positive surprise this quarter:

Ventas Inc (VTR - Free Report) , slated to release second-quarter results on Jul 27, has an Earnings ESP of +0.82% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Vornado Realty Trust (VNO - Free Report) , scheduled to release earnings on Jul 30, has an Earnings ESP of +1.39% and a Zacks Rank #3.

HCP, Inc. , set to release second-quarter results on Aug 2, has an Earnings ESP of +0.66% and a Zacks Rank of 3.

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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