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Arbor Realty (ABR) Gears Up for Q3 Earnings: What Lies Ahead?

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Arbor Realty Trust ABR is scheduled to report third-quarter 2018 results on Nov 2, before the market opens. The company’s results will likely reflect year-over-year growth in its adjusted funds from operations (AFFO) and interest income.

In the last reported quarter, this New York-headquartered real estate investment trust (REIT), which primarily focuses on originating and servicing loans for multifamily, seniors housing, healthcare, and other commercial real estate assets, posted AFFO of 31 cents, comfortably surpassing the Zacks Consensus Estimate of 26 cents.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in all occasions, the average beat being 24.19%. The graph below depicts this surprise history:

Arbor Realty Trust Price and EPS Surprise

Arbor Realty Trust Price and EPS Surprise | Arbor Realty Trust Quote

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Over the past three years, Arbor Realty has focused on improving the stability and diversity of its income stream. Consequently, a significant portion of the company’s income is contributed by gain on sale of loans and servicing (GSE), half of which are attributable to longer-duration servicing income. Arbor’s earnings are now less dependent on revenues from loan portfolio and structured transactions. We expect these strategic moves to support the company’s upcoming results.

Also, for third-quarter 2018, the Zacks Consensus Estimate for the company’s interest income is pegged at $63 million and represents an impressive increase when compared with the interest income of $42 million recorded in the prior-year quarter.

Additionally, the company has decent access to capital markets. In July, it exchanged $230 million worth of convertible debt, carrying a blended rate of 5.86% for $245 million of new three-year convertible debt, at a fixed rate of 5.25%. This transaction reduced the company’s interest cost and generated additional capital that can be used to fund future growth opportunities.

However, yield-curve flattening and escalating trade-war tensions have heightened concerns over global economies and acted as dampeners in the Sep-end quarter. Furthermore, a higher LIBOR rate is expected to have flared up the company’s average cost of borrowings in third-quarter 2018. This may have hindered Arbor Realty’s bottom-line growth during the Jul-Sep period.

Hence, there is lack of any solid catalyst prior to the third-quarter earnings release. As such, the Zacks Consensus Estimate of AFFO for the to-be-reported quarter remained unchanged at 36 cents, over the past month. Nonetheless, on account of continued robust growth in origination volumes and servicing portfolio, AFFO is projected to be up 44% year over year.

Earnings Whispers

Our proven model does not conclusively show that Arbor Realty is likely to beat estimates this quarter. 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. 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.

Earning ESP: Arbor Realty’s Earnings ESP is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of the earnings beat.

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:

Granite Point Mortgage Trust Inc. GPMT, slated to report third-quarter results on Nov 5, has an Earnings ESP of +1.7% and holds a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hannon Armstrong Sustainable Infrastructure Capital, Inc HASI, set to release the Jul-Sep quarter figures on Nov 7, has an Earnings ESP of +7.69% and a Zacks Rank of 3.

Two Harbors Investments Corp TWO, scheduled to report quarterly numbers on Nov 6, has an Earnings ESP of +0.7% and carries a Zacks Rank of 2.

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Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI) : Free Stock Analysis Report
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Arbor Realty Trust (ABR) : Free Stock Analysis Report
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