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Is a Beat in Store for Federal Realty (FRT) in Q1 Earnings?

Zacks Equity Research

Federal Realty Investment Trust FRT is set to report first-quarter 2019 results after market close on May 2. Both its revenues and funds from operations (FFO) are anticipated to witness year-over-year growth.

In the last reported quarter, this retail real estate investment trust (REIT) reported in line results with respect to FFO per share. Results reflected growth in revenues.

The company has a decent surprise history. In the trailing four quarters, it surpassed estimates thrice and reported in line results in the other, the average positive surprise being 1.15%. The graph below depicts the surprise history of the company:

Federal Realty Investment Trust Price and EPS Surprise
 

Federal Realty Investment Trust Price and EPS Surprise | Federal Realty Investment Trust Quote

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

Factors at Play

Federal Realty’s portfolio of premium retail assets — mainly situated in the major coastal markets from Washington, DC to Boston, San Francisco and Los Angeles — and a diverse tenant base, both national and local, position it well for the to-be-reported quarter. In fact, due to superior demographics with dense population and strong household income, the company’s properties are likely to have experienced healthy occupancy level and rental rates in the first quarter.

In addition, the healthy U.S. economy and job market gains are important catalysts for the retail real estate industry’s growth. In fact, in March, retail sales rebounded strongly from the decline suffered in the previous month. This added to the series of economic reports, which indicate that the economy is gathering steam after a soft start to the year. Consumer confidence is getting a boost, fueled by job growth and rising wages, thereby spurring demand for retail goods. This is anticipated to have sent positive ripple effects across the industry in the to-be-reported quarter.

Moreover, amid a fast evolving retail environment, Federal Realty is undertaking concerted measures to reposition, redevelop and re-merchandise its portfolio. The company is also focused on mixed-use properties, aiming to lure those customers who prefer to work, live and stay in the same area.  Also, Federal Realty has a decent balance sheet position with ample liquidity.

Amid these, the Zacks Consensus Estimate for first-quarter revenues is pegged at $234.7 million, indicating 4.1% rise from the year-ago reported figure.

Nonetheless, despite all these efforts, the choppy retail real estate environment might limit its growth momentum to some extent. This is because secular industry headwinds, including retailer downsizing and tenant bankruptcies keep dampening industry fundamentals.

Recent data from Reis shows that the neighborhood and community shopping center vacancy rate remained flat in the first quarter at 10.2%, but inched up from the prior year’s 10%. Additionally, the regional mall vacancy rate witnessed an uptick of 0.3% to 9.3% during the quarter. Nonetheless, national average asking rent and effective rent inched up 0.4% on a sequential basis and 1.6% year over year.

However, Federal Realty’s activities during the quarter did not secure adequate analyst confidence. In fact, the consensus estimate for first-quarter FFO per share moved down marginally to $1.55 in a month’s time. Nevertheless, this indicates a year-over-year rise of 1.97%.

Here is what our quantitative model predicts:

Federal Realty has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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 Federal Realty is +0.43%.

Zacks Rank: Federal Realty carries a Zacks Rank #3, currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other 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:

Public Storage PSA, scheduled to release earnings on May 1, has an Earnings ESP of +1.15% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Welltower, Inc. WELL, set to report quarterly results on Apr 30, has an Earnings ESP of +0.58% and a carries a Zacks Rank of 3.

Mid-America Apartment Communities, Inc. MAA, slated to report first-quarter results on May 1, has an Earnings ESP of +0.29% and a Zacks Rank of 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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Federal Realty Investment Trust (FRT) : Free Stock Analysis Report
 
Mid-America Apartment Communities, Inc. (MAA) : Free Stock Analysis Report
 
Public Storage (PSA) : Free Stock Analysis Report
 
Welltower Inc. (WELL) : Free Stock Analysis Report
 
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