REIT’s Poised for Q4 Earnings Beats
REIT stock prices have been on a roller coaster over the past one year due to concerns surrounding the interest rate environment with the Federal Reserve’s movement related to the economic stimulus. Finally, convinced by the consistent pickup in economic activity and labor market improvement, the Federal Reserve started tapering its bond buying program. With gradual reduction in the Fed’s support, interest rates are expected to increase, which may in turn hurt the rate-sensitive business of REITs in the long run.
The broader picture, however, does not take away opportunities from portfolio diversification that REITs offer owing to their distinct asset class status. Real estate comprises different types of assets that perform based on individual market dynamics. Investors too can gain maximum leverage from the changes seen time to time in performances by these assets.
Consumer Confidence Building Up
A solid GDP report and encouraging U.S. retail data clearly indicate growing consumer confidence; and the Fed’s new-found faith in the economy further reinforces that. Consequently, this is an opportune moment for companies providing real estate support to the retail sector.
Moreover, with the interest rate still remaining at a low level, REITs will continue to benefit in the short term. So you should consider adding some high potential REITs to your portfolio now.
Amid lower supply of new properties, steadily rising demand is shaping up as the sector’s growth driver for years to come.
As per recent analysis by the commercial real estate services firm CBRE Group, Inc. (CBG), the retail availability rate fell 30 bps to 12.0% for the fourth quarter and moved 70 bps down for 2013, reflecting consistent improvement in net absorption. CBRE’s outlook of a further drop in the availability rate for neighborhood and community shopping centers to 10.6% in 2014 is added good news for the sector.
How to Find a Top Pick
Picking the right stock from different sub sectors and stock diversity in the REIT sector could be a tall order. But an easy way to narrow down the list is to take a look at stocks with favorable Zacks Rank and positive Zacks Earnings ESP.
Earnings ESP is our proprietary methodology for determining stocks having the best chance to surprise with their next earnings announcement. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
The combination of a favorable Zacks Rank – Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) – and a positive earnings ESP, is usually a solid indication of earnings beat. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Here are 3 REIT stocks that have the right combination of elements to deliver an earnings beat in their upcoming announcements. Surely, an earnings beat would reinforce investors’ confidence in these stocks and result in quick price appreciation. This, along with the solid dividend income that these REITs offer, guarantees encouraging returns.
Spirit Realty Capital, Inc. (SRC) has a Zacks Rank #3 and an earnings ESP of +5.26%. The Zacks Consensus Estimate for the fourth quarter is pegged at 19 cents per share. Moreover, the company has delivered an average positive earnings surprise of 20.0% over the trailing 4 quarters.
Scottsdale, Arizona-based Spirit Realty makes nation-wide investments in single tenant, operationally essential real estate where the tenants carry out retail, service or distribution activities. With consumer confidence building up and economic activity gaining momentum, we believe the demand for such properties would go up and in turn offer decent upside potential to the stock price.
- Spirit Realty is expected to announce its fourth-quarter results after market close on Feb 27.
DDR Corp. (DDR) is a Zacks Rank #3 stock with an earnings ESP of +3.45%. The Zacks Consensus Estimate for the fourth quarter is 29 cents per share.
Beachwood, Ohio-based DDR Corp. is a retail REITs which acquires, owns, develops, redevelops, leases and manages shopping centers, especially in high growth areas in the continental United States, Puerto Rico and Brazil.
– DDR is scheduled to announce its fourth -quarter results after market close on Feb 12.
Realty Income Corp. (O) carries a Zacks Rank #2 and has an earnings ESP of + 1.64%. The Zacks Consensus Estimate for the fourth quarter is 61 cents per share. The company has registered a positive earnings surprise in three out of last four quarters with an average beat of 1.36 %.
Escondido, Calif.-based monthly dividend company owns more than 3,800 properties under long-term lease deals with regional and national retail chains as well as other commercial enterprises.
- Realty Income is scheduled to announce its fourth-quarter results on Feb 13.
Read the analyst report on SRC
Read the analyst report on DDR
Read the analyst report on O
Zacks Investment Research