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Omega Healthcare (OHI) to Post Q3 Earnings: What's in Store?

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Omega Healthcare Investors, Inc. (OHI - Free Report) is slated to report third-quarter 2018 results on Nov 5, before the opening bell. Though the company’s performance will likely reflect a year-over-year decline in funds from operations (FFO), its top-line results are anticipated to display marginal growth.

In the last reported quarter, this real estate investment trust, which primarily provides finance to the healthcare industry, delivered a positive surprise of 1.33%, in terms of adjusted FFO per share. Results reflected year-over-year growth in interest income for the Jul-Sep quarter.

Over the trailing four quarters, the company’s FFO exceeded estimates in three occasions and missed in the other, the average positive beat being 0.22%. This is depicted in the graph below.

Let’s see how things are shaping up, prior to this announcement.

Factors to Consider

Omega Healthcare’s core portfolio consists of mortgage agreements and long-term leases. In fact, the company provides lease or mortgage financing to skilled nursing facilities (SNFs) and to a lesser extent, assisted living facilities (ALFs), independent living facilities, and rehabilitation and acute care facilities.

In July, the company completed operator transition for its Orianna portfolio in Mississippi to one of its existing operators, for a contractual rent of $12 million. This is expected to have supported the company’s top-line growth in the to-be-reported quarter. Also, all of the company’s leases are triple-net leases, where the tenant pays all taxes, insurance and maintenance for the properties in addition to rent. 

In fact, the Zacks Consensus Estimate for rental income of $194 million reflects a marginal increase from the quarter-ago figure of $193 million. Also, the estimate for third-quarter revenues of $220.7 million underscores a slight rise of 0.52% year over year.

Additionally, the company derives mortgage revenue from fixed-rate mortgage loans. The loans are secured by first-mortgage liens on the underlying real estate. For third-quarter 2018, the Zacks Consensus Estimate for mortgage interest income is pinned at $16.83 million, remaining sequentially flat.

Nevertheless, rising interest rates is expected to have raised the cost of debt, which, in turn, may have affected the company’s profitability during the Jul-Sep quarter.

In addition, Omega Healthcare’s activities during the quarter were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for third-quarter 2018 FFO remained unchanged at 76 cents in a month’s time. Furthermore, it indicates a 3.8% year-over-year decline.

Earnings Whispers

Here is what our quantitative model predicts:

Omega Healthcare 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: Omega Healthcare’s Earnings ESP is +0.66%.

Zacks Rank: The company currently 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.

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:

LTC Properties, Inc. (LTC - Free Report) , scheduled to release earnings on Nov 5, has an Earnings ESP of +0.8% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SBA Communications Corporation (SBAC - Free Report) , slated to report Sep-end quarter results on Nov 5, has an Earnings ESP of +1.29% and a Zacks Rank of 3.

DiamondRock Hospitality Company (DRH - Free Report) , set to report its quarterly numbers on Nov 5, has an Earnings ESP of +5.00% and a Zacks Rank #3.

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

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