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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 2019 results on Nov 5, after the market closes. The company’s performance will likely reflect a year-over-year decline in funds from operations (FFO) per share, while its top line might display growth.

In the last reported quarter, this real estate investment trust, which invests in the long-term healthcare industry, delivered a positive surprise of 2.67%, in terms of adjusted FFO per share. Results reflected year-over-year increase in operating revenues for the April-June quarter.

The company beat estimates in three of the trailing four quarters, with an average positive surprise of 1.04%. This is depicted in the graph below.

Omega Healthcare Investors, Inc. Price and EPS Surprise
 

Omega Healthcare Investors, Inc. Price and EPS Surprise

Omega Healthcare Investors, Inc. price-eps-surprise | Omega Healthcare Investors, Inc. Quote

Omega Healthcare, which invests in the long-term healthcare industry, mainly in skilled nursing (SNF) and assisted living facilities, has emerged as a leading SNF-focused REIT, and achieved diversification in terms of geography and operator in the United States and the U.K. The company’s properties are operated by a diverse group of healthcare companies, primarily in a triple-net lease structure. In the to-be-reported quarter, this diversification is anticipated to have aided the company’s top-line growth. Portfolio occupancy is expected to have benefited from positive demographic trends.

Further, Omega is aiming for accretive buyouts this year, after completing its strategic asset repositioning and portfolio restructurings in 2018. The company closed on its acquisition of MedEquities in May 2019, for a total consideration of $623 million. The transaction helped in the diversification of Omega Healthcare’s assets as well as operators.

In addition, in July, Omega completed a $25-million purchase leaseback for three skilled nursing facilities in North Carolina and Virginia. Such strategic expansion efforts are likely to have helped the company boost its top-line growth in the quarter. Notably, in the same month, the company also signed a purchase and sale agreement to acquire $735 million of skilled nursing and assisted living facilities.

Amid these, the Zacks Consensus Estimate for third-quarter revenues of nearly $232.3 million suggests a rise of 4.7%, year over year.

However, tenant credit headwinds are likely to have kept any robust growth in check. The company noted that its low Medicaid rate and labor pressures have continued to challenge many of its Texas operators. Particularly, with an extensive footprint across the state and mostly rural localities, Daybreak is facing tough times and experiencing low occupancy.

Hence, there is lack of any solid catalyst prior to the third-quarter earnings release. As such, the Zacks Consensus Estimate of FFO for the quarter moved marginally downward to 75 cents, over the past week. The figure also reflects a projected decline of 2.6% year over year.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for Omega this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Omega carries a Zacks Rank of 3, its Earnings ESP of -1.11% makes surprise prediction difficult.

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:

Paramount Group, Inc. (PGRE - Free Report) , scheduled to release earnings on Nov 6, has an Earnings ESP of +1.41% and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Realty Income Corp. (O - Free Report) , slated to report third-quarter results on Nov 4, has an Earnings ESP of +0.33% and holds a Zacks Rank of 2.

Senior Housing Properties Trust (SNH - Free Report) , set to release quarterly numbers on Nov 7, has an Earnings ESP of +3.23% and carries a Zacks Rank of 2, currently.

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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