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Why Is Equity Residential (EQR) Up 6.2% Since Last Earnings Report?

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A month has gone by since the last earnings report for Equity Residential (EQR - Free Report) . Shares have added about 6.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Equity Residential due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Equity Residential Q3 FFO Meets, Revenues Top Estimates

Equity Residential reported third-quarter 2018 normalized FFO per share of 83 cents, in line with the Zacks Consensus Estimate. Moreover, normalized FFO per share figure came in higher than the 80 cents reported in the year-ago quarter.

Results reflect improved same-store NOI and lease-up NOI. Nonetheless, the company incurred higher total interest expense in the quarter.

Also, total revenues in the reported quarter came in at $652.9 million, up 4.6% from the prior-year tally. In addition, the revenue figure comfortably surpassed the Zacks Consensus Estimate of $643.7 million.

Elevated demand and focus on customer service aided high occupancy level, low turnover and strong renewal rates. Therefore, the company expects 2018 same-store revenue growth at the high end of its forecasts.

Quarter in Detail

Same-store revenues (includes 72,561 apartment units) were up 2.3% year over year to $605.4 million while expenses flared up 3.7% year over year to $182.2 million. As a result, same-store NOI inched up 1.7% year over year to $423.2 million.

The company recorded 2.1% growth in average rental rate to $2,779. Physical occupancy remained flat year over year at 96.2% for same-store portfolio.

The company exited the third quarter with cash and cash equivalents of around $33 million, slightly down from $34.5 million recorded at the end of the previous quarter.

Portfolio Activity

During the reported quarter, Equity Residential acquired three apartment properties — two in Denver and one in Boston — for $507.3 million, at a weighted average Acquisition Capitalization Rate of 4.4%. This marked a re-entry into the Denver market that is currently experiencing solid high-wage job growth, high single family home prices, and growing demography of renters, management noted. Going forward, the company expects to enhance its Denver portfolio.

On the other hand, the company sold a 506-unit apartment property in New York City for $416.1 million.

Outlook

For fourth-quarter 2018, Equity Residential projects normalized FFO per share at 84-86 cents.

For 2018, the company revised its guidance. It now expects normalized FFO per share of $3.25-$3.27 compared with the previous outlook of $3.22-$3.28.

The company’s full-year outlook is backed by same-store portfolio revenue growth of 2.3%, against the previous projection of 1.9-2.3%, physical occupancy of 96.2%, up from prior estimates of 96.1% and NOI change of 1.7% against the previously-issued range of 1.0-1.8%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Equity Residential has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Equity Residential has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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