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Will Federal Realty (FRT) Beat Earnings this Season?

Zacks Equity Research

Federal Realty Investment Trust (FRT), the retail real estate investment trust (:REIT), is set to report fourth-quarter 2013 results on Feb 11, after the market closes. Last quarter, it posted a 0.87% positive surprise. Let’s see how things are shaping up for this announcement.

Factors to Consider This Quarter

Federal Realty’s portfolio of Class A shopping centers along with the diversified tenant base, comprising grocery stores and low-end discount retailers such as Wal-Mart Stores, Inc. (WMT) and Target Corp. (TGT), position it well to grow. Additionally, Federal Realty’s successful expansion strategy has long-term value potential and promises steady income growth.

However, rising trend in online shopping through the Internet, mobile phones and tablets has intensified competition and adversely affected the demand for retail real estates. Though this remains a concern for Federal Realty, yet a recovering economy would drive demand for the retail sector going forward, and therefore, the owners of such retail properties are expected to experience rising demand for their properties. 

Federal Realty’s third-quarter 2013 core FFO (funds from operations) per share of $1.16, exceeded the Zacks Consensus Estimate by a whisker and the year-ago quarter figure by 4 cents. Improved performance in the same-store portfolio and notable top-line growth were the drivers. Prompted by the quarterly performance, Federal Realty raised its 2013 FFO per share outlook for the third time in 2013.

Earnings Whispers?

Our proven model does not conclusively show that Federal Realty will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zero Zacks ESP:  Both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.18. Hence, the difference is 0.00%.

Zacks Rank #3: Federal Realty’s Zacks Rank #3 (Hold) when combined with a 0.00% Earnings ESP (Expected Surprise Prediction) makes surprise prediction difficult.

Notably, 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.

Other Stocks to Consider

You could consider another stock in the REIT sector that has both a positive Earnings ESP and a favorable Zacks Rank:

Ventas Inc. (VTR), with an Earnings ESP of +0.94% and a Zacks Rank #2 (Buy). The company will report its fourth-quarter 2013 results on Feb 14.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Read the Full Research Report on WMT
Read the Full Research Report on VTR
Read the Full Research Report on TGT
Read the Full Research Report on FRT

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