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Vornado Realty (VNO) to Post Q4 Earnings: Is a Beat in Store?

Zacks Equity Research

Vornado Realty Trust VNO is scheduled to report fourth-quarter and 2018 results on Feb 11, after the closing bell. Results are expected to display year-over-year growth in revenues and funds from operations (FFO) per share for the Dec-end quarter.

In the last reported quarter, this NY-based real estate investment trust (REIT) delivered a negative surprise of 2.02% in terms of FFO per share. Also, total revenues came in at $542 million in the third quarter, comfortably surpassing the Zacks Consensus Estimate of $537.6 million.

Over the trailing four quarters, Vornado surpassed the Zacks Consensus Estimate in three occasions and missed in the other, witnessing average positive surprise of 5.04%. This is depicted in the graph below:

Vornado Realty Trust Price and EPS Surprise

Vornado Realty Trust Price and EPS Surprise | Vornado Realty Trust Quote

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

Factors to Consider

Economic tailwinds like upbeat consumer sentiment and continued healthy growth in the job market have resulted in increased consumer spending and helped bring the mojo back in the sector. In fact, going by a report by CBRE Group CBRE, net absorption at U.S. retail properties aggregated to more than 14.8 million square feet of space in the fourth quarter.

Further, net asking rents escalated across all retail property types, with the lifestyle & mall segment witnessing year-over-year rent growth of 6.7% during the quarter, its first rent increase since third-quarter 2017.

These encouraging numbers suggest Vornado to have witnessed decent rent growth and occupancy at its Manhattan street retail portfolio. In fact, the fourth-quarter occupancy for the company’s New York retail portfolio is pegged at 97%, flat year over year. 

In addition, revenues for the quarter are pinned at $549.1 million, indicating year-over-year growth of 2.4%. Moreover, the Zacks Consensus Estimate for fourth-quarter 2018 lease termination fees is pegged at $0.87 million, improving from the quarter-ago tally of $0.36 million.

Also, Vornado has made considerable efforts to expand its portfolio through strategic acquisitions. In line with this, the company increased its ownership stake in the Farley Post Office joint venture (JV) with the Related Companies, by acquiring additional 44.9% from its JV partner. The transaction increases Vornado’s Penn Plaza holdings to 9 million square feet.

Importantly, the company announced that the fourth-quarter 2018 financial results will include certain items that will increase its FFO per share, including assumed conversions by 20 cents. However, this amount will be excluded in the adjusted FFO plus assumed conversions per share figure.

However, higher interest rates during the quarter are expected to have escalated the company’s interest expense. This will weigh on the company’s bottom-line growth in the quarter under review.

Prior to the fourth-quarter earnings release, the Zacks Consensus Estimate for the company’s fourth-quarter FFO per share has been revised marginally downward in a month’s time, indicating bearish sentiments of analysts. Nonetheless, the estimate of 99 cents indicates year-over-year growth of 1.02%.

Earnings Whispers

Here is what our quantitative model predicts:

Vornado 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: Vornado’s Earnings ESP is +0.78%.

Zacks Rank: It 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 other players in the REIT space are lined up to report their financial results, below are two 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.

American Tower Corporation AMT, set to release earnings on Feb 27, has an Earnings ESP of +0.29% and carries a Zacks Rank of 3.

CyrusOne Inc. CONE, scheduled to report quarterly numbers on Feb 20, has an Earnings ESP of +3.07 and carries a Zacks Rank of 3.

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