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What's in the Cards for STORE Capital (STOR) in Q3 Earnings?

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STORE Capital Corporation STOR is set to report third-quarter 2018 results before the market opens on Nov 1. Both its revenues and funds from operations (FFO) are anticipated to reflect year-over-year growth.

In the last reported quarter, this Scottsdale, AZ-based net-lease REIT delivered a positive surprise of 2.27% 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 positive surprise being 3.65%. 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 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. One of the fastest growing net-lease REITs, STORE Capital enjoys ownership of a large, well-diversified portfolio, comprising investments in more than 2,000 property locations, majority of which are profit centers.

The tenants belong to the retail, service and manufacturing sectors. Its real estates include restaurants, furniture stores, early childhood education centers, movie theaters and health clubs, as well as sporting goods stores.

STORE Capital enjoys broad-based demand for its real estate capital solutions. Moreover, with active portfolio management, the company is likely to maintain a solid portfolio with low delinquencies and vacancies in the third quarter. Also, its customers focused on the middle market are likely to boost their revenues amid improving economy.

STORE Capital is active on the acquisition front. In the quarter under review, STORE Capital is likely to benefit from the increase in the size of its real estate investment portfolio. The company’s top line is expected to gain from the increase in property locations and customer base. The company’s leases normally have lease escalations, with majority escalations tied to the consumer price index and subject to a cap.

The company also maintains adequate financial flexibility, enjoying access to the equity and debt markets.

Nonetheless, there is stiff competition from alternate methods of purchasing goods and services, including online-service providers and retailers. Therefore, businesses of the company’s tenants may be affected, which, in turn, have the capability to impact STORE Capital’s business as it leases real estate to service and retail businesses. Additionally, rate hike adds to the company’s woes.   

Amid these, the company’s third-quarter revenues are pinned at $127.9 million, indicating a 23% increase from the prior-year quarter. Moreover, the Zacks Consensus Estimate for FFO per share for the quarter under review is 46 cents, reflecting a 12.2% year over year.

However, STORE Capital’s activities during the quarter were insufficient to secure analyst confidence. Consequently, the consensus estimate for third-quarter FFO per share remained unrevised at 46 cents in a month’s time.

Earnings Whispers

Our proven model does not conclusively show that STORE Capital is likely to beat estimates this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. However, that is not the case here as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for STORE Capital is 0.00%.

Zacks Rank: STORE Capital’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of a positive surprise.

Stocks That Warrant a Look

Here are a few other 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:

Ashford Hospitality Trust Inc AHT, scheduled to release earnings on Nov 1, has an Earnings ESP of +7.14% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Omega Healthcare Investors, Inc. OHI, slated to release third-quarter results on Nov 5, has an Earnings ESP of +0.66% and a Zacks Rank of 3.

Park Hotels & Resorts Inc. PK, set to report its quarterly numbers on Nov 1, has an Earnings ESP of +0.87% and a Zacks Rank #3.

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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