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Ventas (VTR) Gears Up for Q2 Earnings: What's in the Cards?

Ventas, Inc. VTR is scheduled to report second-quarter 2018 results on Jul 27, before the market opens. The company’s performance will likely reflect year-over-year growth in revenues. However, results are expected to display a decline in funds from operations (FFO) per share.

In the last reported quarter, this Chicago, IL-based healthcare real estate investment trust (REIT) delivered a negative surprise of 4.95%. Nonetheless, revenues of $943.7 million in the first quarter comfortably surpassed the Zacks Consensus Estimate of $850.6 million.

Further, Ventas posted an average negative surprise of 1% over the trailing four quarters, surpassing estimates once, posting in-line results twice and missing estimate in the other occasion. The graph below depicts this surprise history:

Ventas, Inc. Price and EPS Surprise
 

Ventas, Inc. Price and EPS Surprise | Ventas, Inc. Quote

Let’s see how things have shaped up for this announcement.

Factors at Play

Healthcare REITs are well poised to benefit from increasing healthcare spending and aging population. In fact, per management, the population segment aged 80 years and older is anticipated to rise 50% between 2020 and 2030. Hence, we believe Ventas has a strong upside potential, with nearly 70% of its properties located in the coastal markets, to capitalize on this favorable trend.

Ami these, the Zacks Consensus Estimate for rental income from office building is currently pegged at $195 million, indicating a moderate increase from the last quarter.

Importantly, during the April-June quarter, Ventas entered into a mutually beneficial agreement with Brookdale Senior Living that has combined the operator’s triple-net lease obligations into a single Master Lease. The lease is expected to expire on Dec 31, 2025, with Brookdale retaining 10-year extension options.  

Moreover, both companies have agreed to sell certain properties in the portfolio that will help improve and optimize the portfolio. This arrangement is expected to favorably impact Ventas’s normalized FFO / share. In fact, the Zacks Consensus Estimate for second-quarter 2018 FFO per share has been revised upward by a cent in a week’s time, reflecting analysts’ confidence in the stock.

Also, the Zacks Consensus Estimate for service revenues from medical office buildings is pegged at $3.38 million, reflecting an increase of 1.5% from the prior-quarter reported tally.

Nonetheless, oversupply in some markets is likely to burden the performance of Ventas’ senior housing assets. Since this curtails landlords’ pricing power and limits growth in occupancy level, we expect the company’s second-quarter numbers to reflect the impact of the prevalent oversupply situation.

The Zacks Consensus Estimate of $186 million for triple net-leased rental income indicates a sequential decline from the prior-quarter figure of $191 million. Furthermore, the Zacks Consensus Estimate for office building and other services revenues is $3.83 million, reflecting a sequential decline of 1.8%.

Additionally, shares of Ventas have outperformed the industry in the past three months. While the company’s shares have rallied 23%, the industry recorded growth of 9.4%.


 

Earnings Whispers

Here is what our quantitative model predicts:

Ventas 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.
 
Zacks ESP: The Earnings ESP for Ventas is +0.82%.

Zacks Rank: The company currently carries a Zacks Rank of 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

While the other players in this space are lined up to report financial results, below are three stocks, poised to beat on earnings per the proven Zacks model. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Extra Space Storage EXR, slated to release second-quarter results on Jul 31, has an Earnings ESP of +0.44% and a Zacks Rank of 3.

Vornado Realty Trust VNO, scheduled to report Q2 figures on Jul 30, has an Earnings ESP of +1.39% and carries a Zacks Rank #3.

HCP, Inc. HCP, set to release April-June results on Aug 2, has an Earnings ESP of +0.66% and 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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HCP, Inc. (HCP) : Free Stock Analysis Report
 
Ventas, Inc. (VTR) : Free Stock Analysis Report
 
Vornado Realty Trust (VNO) : Free Stock Analysis Report
 
Extra Space Storage Inc (EXR) : Free Stock Analysis Report
 
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