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What's in the Cards for STORE Capital's (STOR) Q4 Earnings?

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STORE Capital Corporation STOR is set to report fourth-quarter and full-year 2019 results before market open on Feb 20. While results are projected to display a year-over-year increase in revenues, its funds from operations (FFO) per share might display a decline.

In the last reported quarter, this Scottsdale, AZ-based net-lease REIT delivered a positive surprise of 4.17% with respect to FFO per share.

The company has a decent surprise history. It surpassed estimates in each of the trailing four quarters, the average beat being 4.26%. The graph below depicts the surprise history of the company:

STORE Capital Corporation Price and EPS Surprise

STORE Capital Corporation Price and EPS Surprise

STORE Capital Corporation price-eps-surprise | STORE Capital Corporation Quote

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

Factors to Consider

STORE Capital is engaged in the acquisition, investment and management of Single Tenant Operational Real Estate. This REIT has emerged as one of the fastest growing net-lease REITs. With active portfolio management, the company is expected to have maintained a solid portfolio with low delinquencies and vacancies in the December-end quarter. It also has adequate financial flexibility, enjoying access to the equity and debt markets.

The company is also active on the investment front and capital recycling, and its fourth-quarter results are likely to mirror benefits from the increase in the size of the real estate investment portfolio. Increase in property locations and customer base are anticipated to have bolstered its top line.

Amid these, the company’s fourth-quarter revenues are pegged at $164.2 million, calling for a 17.9% increase from the year-ago reported figure.

Nonetheless, secular industry headwinds, including retailer downsizing and tenant bankruptcies, keep dampening the retail real estate industry fundamentals. The recent data from Reis shows that the retail and the Mall vacancy rates both increased in the quarter. Particularly, the retail vacancy rate inched up 0.1% to 10.2% in the fourth quarter. Further, retail rent growth was just 0.1%, while mall rents remained flat.

There is stiff competition from alternate channels of purchasing goods and services, including online-service providers and retailers. As such, businesses of the company’s tenants might have been affected, in turn, marring STORE Capital’s business, as it leases real estate to service and retail businesses.   

Further, STORE Capital’s activities during the October-December period were insufficient to secure analyst confidence. Consequently, the consensus estimate for fourth-quarter FFO per share remained unrevised at 47 cents in a month’s time. The figure also suggests a 2.1% decline year on year.

For full-year 2019, the company expects 2019 adjusted FFO per share of $1.96-$1.97. The Zacks Consensus Estimate for the same is currently pinned at $1.92, suggesting 4.4% year-over-year growth on revenues of $637.57 million.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for STORE Capital 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.

STORE Capital currently carries a Zacks Rank #5 (Strong Sell) and has an Earnings ESP of 0.00%.

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:

Realty Income Corporation O, scheduled to release earnings on Feb 19, has an Earnings ESP of +1.25% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ventas, Inc. (VTR - Free Report) , slated to report fourth-quarter results on Feb 20, has an Earnings ESP of +0.81% and holds a Zacks Rank of 3, at present.

Kite Realty Group Trust KRG, set to release quarterly numbers on Feb 18, has an Earnings ESP of +0.74% and carries a Zacks Rank of 3, 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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