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What's in the Offing for Essex Property (ESS) Q3 Earnings?

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Essex Property Trust, Inc. (ESS - Free Report) is scheduled to report third-quarter 2018 results on Oct 29, before the market opens. The company’s results will likely display year-over-year growth in funds from operations (FFO) per share and revenues.

In the last reported quarter, this San Mateo, CA-based residential real estate investment trust (REIT) delivered a positive surprise of 1.29%, in terms of FFO per share. Results reflected growth in same-property net operating income (NOI) and high occupancy levels.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate in three occasions and met in the other, the average beat being 0.82%. This is depicted in the graph below:

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

Factors at Play

Essex Property has a sturdy property base and an efficient management team. Moreover, this San Mateo, CA-based residential REIT’s substantial exposure to the West Coast market offers the company ample scope to boost its top line.

Notably, the West Coast is home to several innovation and technology companies. The region is witnessing solid job growth, higher wages, increased percentage of renters than owners, and favorable migration trends with the influx of workers to its markets, mainly from the major East Coast markets.

Therefore, despite supply issues plaguing the market, currently, the company continues to display robust fundamentals and improving prospects, as these factors will likely spur demand for renting units in the market and drive its revenues.

Moreover, the third quarter of this year proved to be an encouraging one for the U.S. apartment market with accelerating rent growth and increasing occupancy level. In fact, rents grew at an annual pace of 2.9% in the quarter and reversed the pattern of slowing price hikes, since late 2015, per a study by the real estate technology and analytics firm — RealPage, Inc. (RP - Free Report) . Also, occupancy came in at 95.8%, up from 95.4% reported in the previous quarter.

Amid these, Essex Property is likely to have leveraged on favorable demographic trends, household formation, recovering economy and job-market growth in its markets. Additionally, the company maintains a solid balance sheet and enjoys financial flexibility which is likely to have aided its operational performance in the quarter.

Notably, the Zacks Consensus Estimate for third-quarter revenues is pegged at $351.0 million, marking an expected increase of 1.93% year over year. Further, the company estimates core FFO per share of $3.07-$3.17 for the quarter. The Zacks Consensus Estimate for the same is currently pinned at $3.14. It reflects 5.4% growth from the prior-year quarter.

Nevertheless, apartment deliveries are expected to have remained elevated in a number of its markets. This high supply is a concern because it curtails landlords’ ability to command more rent and results in lesser absorption. Such an environment is likely to have led to high rental concessions and moderate pricing power of the company.

In addition, the Zacks Consensus Estimate for FFO per share has been revised marginally downward in the last 30 days.

Here is what our quantitative model predicts:

Essex Property 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 Essex Property is +0.06%.

Zacks Rank: Essex Property carries a Zacks Rank of 3, currently.

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.

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:

Regency Centers Corp. (REG - Free Report) , scheduled to release earnings on Oct 25, has an Earnings ESP of +0.21% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Welltower Inc. (WELL - Free Report) , slated to release third-quarter results on Oct 30, has an Earnings ESP of +1.06% and a Zacks Rank of 3.

Public Storage (PSA - Free Report) , set to report quarterly numbers on Oct 30, has an Earnings ESP of +0.27% and a Zacks Rank #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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