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Will Equity Residential (EQR) Surprise This Earnings Season?

Zacks Equity Research

Residential real estate investment trust (:REIT) – Equity Residential (EQR) – prepares to release its first-quarter 2014 results on Apr 30, 2014, after the market close.

In the last quarter, it delivered a positive earnings surprise of 1.32% on the back of higher same store net operating income (:NOI) and a benefit from the Archstone properties. Let’s see how things are shaping up for the company prior to the announcement.

Factors to Consider

Equity Residential’s concerted efforts toward repositioning its portfolio from low barrier-to-entry/non-core markets to high barrier-to-entry/core markets will drive top-line growth going forward. Its current focus is to acquire and develop assets primarily in 6 core coastal metropolitan areas – Boston, New York, Washington D.C., Southern California, San Francisco and Seattle.

Last year, the company completed the Archstone acquisition that added properties across these diverse geographic locations. Moreover, giving us confidence is the recent analysis by the commercial real estate services firm CBRE Group, Inc. (CBG).

This study reveals that the apartment demand carried on increasing at a firm rate in the first quarter of 2014. Also, the national apartment demand is currently growing at a stronger pace (over 220,000 units or 1.6% on an annual basis) than what the market has observed historically.

However, the company has a decent exposure to the Washington D.C. market, where conditions remain choppy with rise in new supply and the impact of sequestration and furloughs, thus posing a challenge for rent growth in the near term.

Earnings Whispers

Our proven model does not conclusively show that Equity Residential is likely to beat the Zacks Consensus Estimate in the upcoming quarter.

To beat the estimate, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Zero Zacks ESP: The Earnings ESP for Equity Residential is 0.00%.  This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 71 cents per share.

Zacks Rank #3 (Hold): Equity Residential’s Zacks Rank #3 (Hold) increases the predictive power of ESP. Nevertheless, we need to have a positive ESP as well to be confident about an earnings surprise call.

Other Stocks to Consider

Here are some other REITs you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

Public Storage (PSA), with an Earnings ESP of +0.54% and a Zacks Rank #3. The company is slated to report its first-quarter 2014 results on May 1.

Kimco Realty Corp. (KIM), with an Earnings ESP of +2.94% and a Zacks Rank #3. The company will report its first-quarter 2014 results on May 7.

Read the Full Research Report on EQR
Read the Full Research Report on CBG
Read the Full Research Report on PSA

Zacks Investment Research