Timber real estate investment trusts (:REIT) – Plum Creek Timber Company Inc. (PCL) – is set to report its fourth-quarter 2013 results on Jan 27, after the closing bell. In the last quarter, it delivered a positive earnings surprise of 4.76%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Plum Creek, which owns the largest and most geographically diversified private timberland in the U.S, experienced an average earnings surprise of 26.21% in the last four quarters. However, the fourth-quarter scenario does not seem to be in favor of the company due to the decline in timber industry fundamentals.
The softening of prices of logs due to oversupply, especially in the Southeast region, is a matter of concern for the company. Additionally, Plum Creek has earlier anticipated the seasonally lower sales volumes for its manufactured products to lead to low manufacturing segment’s profitability in fourth-quarter 2013.
Moreover, Plum Creek has been suffering a low harvest volume in Northern and Southern Resources segments since the past few quarters. This might limit any robust top-line expansion going forward.
Our proven model does not conclusively show that Plum Creek is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: The Expected Surprise Prediction or ESP for Plum Creek is -7.14% since the Most Accurate estimate stands at 26 cents per share, while the Zacks Consensus Estimate is higher at 28 cents.
Zacks Rank #4 (Sell): Plum Creek’s Zacks Rank #4 when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement.
Other Stocks to Consider
Some better performing REIT stocks that have both a positive earnings ESP and a favorable Zacks Rank are:
Public Storage (PSA), with an Earnings ESP of + 1.98% and a Zacks Rank #2 (Buy). The company is scheduled to report its fourth-quarter 2013 results on Feb 20, after the market closes.
Ventas Inc. (VTR), with an Earnings ESP of + 0.94% and a Zacks Rank #2. The company will report its fourth-quarter 2013 results on Feb 14, before the opening bell.
DDR Corp. (DDR), with an Earnings ESP of +3.45% and a Zacks Rank #3 (Hold). The company is slated to report its fourth-quarter 2013 results on Feb 12, after the closing bell.