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Will Solid Demand Aid Extra Space Storage (EXR) Q2 Earnings?

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Extra Space Storage Inc. EXR is slated to report second-quarter 2018 results on Jul 31, after the market closes. The company’s results are expected to reflect year-over-year growth in revenues and funds from operations (FFO).

In the last reported quarter, this Salt Lake City, UT-based self-storage real estate investment trust (REIT) delivered an in-line performance in terms of FFO per share. Results reflect growth in property-rental revenues and improvement in same-store NOI. Particularly, higher rental rates supported growth.

Over the trailing four quarters, the company exceeded the Zacks Consensus Estimate in three quarters and met in the other, with an average beat of 2.56%. This is depicted in the graph below:

Extra Space Storage Inc Price and EPS Surprise
 

Extra Space Storage Inc Price and EPS Surprise | Extra Space Storage Inc Quote

Let’s see how things are shaping up for this announcement.

Factors to Influence Q2 Results

Extra Space Storage is the second largest self-storage operator in the United States and the largest self-storage management company in the nation. The company enjoys high brand value and robust presence in key cities.

In fact, it has made concerted efforts to consistently grow its business, and achieve geographical diversity through accretive acquisitions, mutually beneficial joint-venture partnerships, and third-party management services.

Moreover, the self-storage industry is anticipated to experience solid demand backed by favorable demographic changes, improving job market and rising incomes, as well as events like marriages, shifting, death, and even divorce. Amid these, in the soon-to-be-reported quarter, the company is likely to benefit from steady demand in the self-storage industry, and record growth in same-store revenues and NOI.

The Zacks Consensus Estimate of $257 million for property rental revenues reflects a sequential rise from the prior-quarter figure of $248 million. The estimate for management fees and other income is pegged at around $10.9 million, indicating a projected increase from $10.6 million reported in the previous quarter. Moreover, the Zacks Consensus Estimate for Q2 total revenues is pegged at $294.9 million, indicating a year-over-year rise of nearly 6.9%.

Nevertheless, elevated supply of self-storage units in a number of markets during the June-end quarter is predicted to have affected this industry’s performance.

However, there is a development boom of self-storage units in many markets. This will likely intensify competition for the company, curb its power to raise rents, and turn on more discounting.

Prior to the second-quarter earnings release, there is lack of any solid catalyst for raising optimism about the company’s business activities and prospects. As such, the Zacks Consensus Estimate for FFO per share for the to-be-reported quarter remained unchanged at $1.15, over the past month. However, it indicates a year-over-year increase of 5.5%.

Here is what our quantitative model predicts:

Extra Space Storage has 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 Extra Space Storage is +0.44%.

Zacks Rank: Extra Space Storage carries a Zacks Rank #3.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably 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:

UDR Inc. UDR, slated to release second-quarter results on Jul 30, has an Earnings ESP of +1.61% and a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Vornado Realty Trust VNO, scheduled to release quarterly figures on Jul 30, has an Earnings ESP of +1.30% and a Zacks Rank #3.

HCP, Inc. HCP, set to report Q2 numbers on Aug 2, has an Earnings ESP of +0.60% and 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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