As we stand in one of the busiest weeks of the current reporting cycle, investors can be lured by the profits of companies that have already released their quarterly figures. However, instead of adding the stocks later to your portfolio, accumulating the ones that are yet to report earnings and poised to beat estimates can generate higher gains. This is because an earnings beat usually serves as a catalyst, boosting investor confidence in a stock and resulting in price appreciation.
While the first quarter began on a positive note with a resilient economy and decent job-market strength, things got weary in the second half due to the coronavirus pandemic. However, REITs invest in all types of properties, from residential, offices, malls to hospitals, hotels and data centers, to several others. Therefore, not all of these were impacted, as the underlying asset categories and location of properties play a crucial role in determining REITs’ performance.
Take for example the industrial real estate asset category which continues to play a pivotal role in a rising e-commerce market, transforming the way how consumers shop and receive their goods. Moreover, apart from e-retail, companies are making strategic moves to improve their supply-chain efficiencies, spurring demand for logistics infrastructure and efficient distribution networks.
Prior to the coronavirus pandemic, the U.S. industrial market was on a solid footing and though the outbreak resulted in a choppy situation in March, it needs to be noted that this asset category seems to be one of the most resilient ones during the crisis. Per a report from CBRE Group CBRE, net asking rents were up 4.8% year on year in the March-end quarter, while the vacancy rate came in at a near-record low of 4.5%. With anticipations for greater inventory controls, supply-chain diversification as well as e-commerce progression, this asset category has scope for long-term growth.
Moreover, per a report from real estate technology and analytics firm RealPage, the U.S. apartment rental market’s performance in February was steady with national apartment occupancy in the month remaining at 95.5%, in line with January’s and up 30 basis points (bps) from the year-ago tally. Rent growth of 2.9% also came in line with the three-year average.
Apart from these, data-center and tower REITs have experienced decent market fundamentals and are poised to benefit from the heightening reliance on technology. Moreover, for retail REITs, the impact of shutdowns and store closures are likely to be more pronounced on retail real estate fundamentals in the second quarter than in the first.
The Zacks Methodology
However, picking the right stock could be difficult unless one knows the proper method. To make the task simple we rely on the Zacks methodology, combining a Zacks Rank — Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) — and a positive Earnings ESP.
Our proprietary methodology, Earnings ESP, shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. And research shows that for stocks with this combination of rank and ESP, chances of a positive earnings surprise are as high as 70%.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here are four REITs that have the right combination of elements to deliver a positive surprise this season. Also, the diversification benefits that real estates offer make them prudent investment choices now.
Americold Realty Trust COLD currently carries a Zacks Rank of 3 and has an Earnings ESP of +9.74%. The Zacks Consensus Estimate for this REIT’s first-quarter funds from operations (FFO) per share has been revised upward marginally in a month’s time to 28 cents. Its revenue estimate suggests a 21.9% year-on-year increase to $479.2 million.
Atlanta, GA-based Americold Realty is focused on the operation and development of temperature-controlled warehouses. The firm currently owns and operates roughly 175 warehouses across the United States, New Zealand, Australia, Canada, and Argentina. It works mostly with food producers, processors, distributors, and retailers. The REIT is likely to play a key role during the coronavirus crisis as its facilities are integral components in vital supply chains.
Americold Realty is scheduled to report quarterly figures on May 7.
SBA Communications Corporation SBAC currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.67% for the quarter under review.
This Boca Raton, FL-based communications tower REIT has a decent surprise history, having beaten estimates in each of the trailing four quarters, the average positive surprise being 2.8%.
In the January-March quarter, the company is anticipated to have benefited from incredible mobile subscriber growth witnessed by the wireless tower industry. In fact, next-generation 4G LTE networks, heavy investments in future 5G networks, and the increased use of smartphones and tablets have been generating impressive demand for tower leasing. This is likely to have driven the tower operator’s domestic and international site-leasing activities during the quarter to be reported.
SBA Communications is scheduled to release earnings figures on May 5.
You can see the complete list of today’s Zacks #1 Rank stocks here.
VEREIT, Inc. VER currently carries a Zacks Rank #3 and has an Earnings ESP of +5.15%. This Phoenix, AZ-based diversified REIT has a decent surprise history, having beaten estimates in all of the preceding four quarters, the average positive surprise being 3.69%.
VEREIT Inc. owns and manages one of the largest portfolios of single-tenant commercial properties in the United States. Particularly, it has a diversified portfolio of retail, restaurant, office and industrial real estate assets.
VEREIT Inc. is set to report quarterly numbers on May 20.
Equity Residential EQR, a Chicago, IL-based residential REIT, currently holds a Zacks Rank #3 and has an Earnings ESP of +1.26%, at present. The REIT has a projected long-term growth rate of 5.2%.
The company surpassed the Zacks Consensus Estimate in each of the last four quarters, the average positive surprise being 2.02%.
Equity Residential recently noted that its same-store portfolio remains well occupied at 96.5% as of Mar 24, 2020. The company is also seeing indications of increased retention. Furthermore, the company announced that it has collected about 93% of its April cash rents through Apr 7, and is having talks with the remainder of the residents on payment options.
For the to-be-reported quarter, Equity Residential projects normalized FFO per share at 84-88 cents. The Zacks Consensus Estimate for the same is currently pegged at 87 cents, indicating a 6.1% year-over-year improvement on solid revenues. The Zacks Consensus Estimate for the company’s quarterly revenues is pinned at $683.7 million, suggesting 3.2% growth year on year.
Equity Residential is scheduled to announce earnings results on May 5.
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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