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Will Kimco (KIM) Beat this Earnings Season?

Zacks Equity Research

Kimco Realty Corporation (KIM) is set to report its first-quarter 2014 results on May 7, after the closing bell. This retail real estate investment trust (:REIT) has an expected FFO growth rate of 4.21%. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model reveals that Kimco is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: The company’s Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +2.94%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank: Kimco carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings.

This combination of Kimco’s Zacks Rank and Earnings ESP makes us confident about a positive earnings beat.

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.

What is Driving the Better-than-Expected Earnings?

Strong core operating fundamentals, continued portfolio restructuring program, solid demand for its properties along with easy access to capital are expected to lead to a positive earnings surprise in first-quarter 2014. Moreover, giving us confidence is the recent analysis by the commercial real estate services firm CBRE Group, Inc. (CBG), which revealed that the retail availability rate dropped 10 bps to 11.9% in the first-quarter 2014 – reflecting its first dip below 12% since 2009.

As a matter of fact, in first-quarter 2014, Kimco concluded transactions over $500 million. Specifically, the company acquired 5 premium shopping centers for $216.0 million and offloaded its ownership stake in 11 assets in its U.S. portfolio for $63.7 million. Also, the company vended a Mexican retail portfolio for 2.9 billion Mexican pesos ($222 million) in its Latin America portfolio. Such moves are in line with Kimco’s strategy of focusing on key U.S. markets having demographics and household income levels higher than the national average.

Other Stocks to Consider

Kimco is not the only firm looking up this earnings season. Other stocks in the REIT sector having the right combination of the two key ingredients and are slated to report on May 7, are:

Regency Centers Corporation (REG), with an Earnings ESP of +1.54% and a Zacks Rank #3.

Strategic Hotels & Resorts, Inc. (BEE), with an Earnings ESP of +83.3% and a Zacks Rank #2 (Buy).

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 CBG
Read the Full Research Report on KIM
Read the Full Research Report on REG
Read the Full Research Report on BEE

Zacks Investment Research