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Duke Realty (DRE) Gears Up for Q2 Earnings: What to Expect?

Zacks Equity Research

Duke Realty Corp. DRE is scheduled to report second-quarter 2019 results on Jul 31, after the market closes. The company’s results will likely reflect year-over-year growth in its funds from operations (FFO) per share and revenues.

In the last reported quarter, this industrial real estate investment trust (REIT) delivered a positive surprise of 3.13%. Results indicated overall improved operations as well as increased investments in new industrial properties.

Over the preceding four quarters, the company beat the Zacks Consensus Estimate on two occasions and met estimates in the other two, the average beat being 1.52%. The graph below depicts this surprise history:

Duke Realty Corporation Price and EPS Surprise

Duke Realty Corporation Price and EPS Surprise

Duke Realty Corporation price-eps-surprise | Duke Realty Corporation Quote

Let’s see how things are shaping up.

Factors at Play

The industrial real estate asset category has grabbed headlines in a rising e-commerce market and continues to play a pivotal role, transforming the way how consumers shop and receive their goods. Nevertheless, rising supply as well as a slowdown in global growth, together with trade disputes, has been raising concerns, of late, about this industry’s growth prospects.

However, per a study by the commercial real estate services firm — CBRE Group CBRE — the U.S. industrial & logistics sector remained healthy in the second quarter even with potential headwinds. The sector reported an availability rate of 7.1% for the quarter.

Although the availability rate reflects a marginal uptick from the prior quarter, net asking rents inched up 0.4% quarter on quarter to $7.50 per square feet — representing the highest level since CBRE started tracking the metric in 1989. Moreover, rents have climbed 6.4% year over year and this also indicates a 2% percentage point above the average annual growth rate since 2012.

Resilient consumer sentiment, low unemployment level and rising wages are playing key roles in keeping up the healthy performance of the industrial and logistics sector. Services like same-day delivery are gaining traction and last-mile properties in high-income urban areas are witnessing solid pricing, occupancy and growth in rentals.

As for Duke Realty, its solid capacity to bank on this favorable trend will likely have helped the company witness high occupancy, active leasing and healthy rent levels across a number of properties during the April-June period.

However, recovery in the industrial market has continued for long and a whole lot of new buildings are becoming available in the market, leading to higher supply and lesser scope for rent and occupancy growth. Intensifying trade tensions is another concern.

Amid these, the Zacks Consensus Estimate for the to-be-reported quarter’s revenues is currently pinned at $213.5 million, indicating a 1.4% increase from the prior-year quarter reported tally.

The company’s activities during the June-end quarter were inadequate to gain analysts’ confidence. Therefore, the Zacks Consensus Estimate for the second-quarter 2019 FFO per share remained unchanged at 35 cents, over the last 30 days. However, the figure indicates projected year-over-year growth of 6.1%.

Here is what our quantitative model predicts:

Duke Realty does not have 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 Duke Realty is 0.00%.

Zacks Rank: Duke Realty has a Zacks Rank of 2 (Buy), which increases the predictive power of ESP. However, we also need a positive ESP to be confident of a positive surprise.

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:

Life Storage, Inc. LSI, scheduled to release earnings on Jul 31, has an Earnings ESP of +0.12% and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Federal Realty Investment Trust FRT, slated to report second-quarter results on Aug 1, has an Earnings ESP of +0.57% and currently carries a Zacks Rank of 2.

Realty Income Corporation O, set to report quarterly results on Aug 5, has an Earnings ESP of +0.78% and currently carries a Zacks Rank of 3.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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