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Why Is Taubman (TCO) Down 9.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Taubman Centers (TCO - Free Report) . Shares have lost about 9.4% in that time frame, underperforming the S&P 500.

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

Taubman Centers' Q3 FFO Surpasses Estimates

Taubman Centers reported third-quarter 2018 adjusted FFO per share of $1.01, surpassing the Zacks Consensus Estimate of 86 cents. The figure also came in higher than the year-ago tally of 83 cents.

Adjusted revenues, including minimum rents, overage rents and expense recoveries, for the quarter came in at $142.7 million, missing the Zacks Consensus Estimate of $145 million. Nonetheless, the figure came in higher than the prior-year tally of $140 million.

Taubman Centers experienced higher minimum rents, elevated average rent per square foot, greater lease cancellation income, and lower general and administrative expenses. In addition, the company raised its FFO per share guidance for 2018.

Quarter in Detail

Comparable center NOI (excluding lease cancellation income) increased 9.2% in the quarter under review. Average rent per square foot for the company’s U.S. comparable centers came in at $61.63, up 3.6% from the year-ago quarter. For the period ended Sep 30, 2018, the trailing 12-month releasing spreads per square foot were 3.7%.

Moreover, comparable center tenant sales per square foot were up 5.8% year over year in the reported quarter. Further, the company’s year-to-date tenant sales per square foot marked 8% growth.

As of Sep 30, 2018, leased space in comparable centers was 95.6%, down 1% from the comparable period last year. Additionally, ending occupancy in comparable centers was 92.9% at the end of the third quarter, down 1.4% year over year, but up 0.7% from the Jun-end quarter’s tally.

Liquidity

Taubman Centers exited the Jul-Sep quarter with cash and cash equivalents of $38 million, down from the $42.5 million reported at the end of the December 2017.

Guidance

The company projects 2018 adjusted FFO per share of $3.76-$3.84, revised upward from the previous outlook of $3.74-$3.84. The full-year FFO per share guidance is backed by assumption of comparable center NOI growth of about 3.5-4.5%, up from the earlier forecast of 3-4%. The company continues to expect occupancy to be nearly 95% the end of 2018.

For 2019, consolidated and unconsolidated interest expenses are estimated to be $297-$303 million, marking an escalation from $265-$268 million in the current year. The upswing indicates higher interest rates, greater borrowing and lower amount of interest capitalized. Furthermore, it anticipates to incur operating expenses of $5-$7 million in 2019 on account of the new lease accounting standard.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Taubman 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Taubman has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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