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What's in the Cards for Ladder Capital (LADR) in Q1 Earnings?

Ladder Capital Corp LADR is scheduled to report first-quarter results on May 5, after market close. The company’s results will likely reflect a year-over-year decline in earnings per share (EPS). Its revenues are likely to have improved.

In the last reported quarter, this New York City-headquartered commercial real estate finance company focused on mid-market senior secured commercial real estate first mortgage loans posted core EPS of 40 cents, surpassing the Zacks Consensus Estimate of 38 cents. Nonetheless, net interest income (NII) declined as compared to first-quarter 2018.

Over the trailing four quarters, the company outpaced the Zacks Consensus Estimate on two occasions for as many misses. It delivered a positive surprise of 1.29%, on average, during this period. The graph below depicts this surprise history:

Ladder Capital Corp Price and EPS Surprise

Ladder Capital Corp Price and EPS Surprise
Ladder Capital Corp Price and EPS Surprise

Ladder Capital Corp price-eps-surprise | Ladder Capital Corp Quote

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

Factors at Play

The liquidity-driven market turbulence, triggered by the ongoing coronavirus crisis, has resulted in significant dislocations in the mortgage and commercial real estate (“CRE”) markets. Specifically, as the economic impacts of the pandemic became clear, cash preservations and concerns over the failure of meeting mortgage payments have resulted in a risk-off approach by investors, who started indiscriminately shedding risky assets. In light of the events, valuations of mortgage backed securities (MBS) declined significantly.

CRE lenders have been the hardest hit by this as they rely on secured funding and witnessed a significant decline in values of collateral particularly on commercial MBS, real estate-related securities and loans. This led to margin calls on the secured loans, requiring CRE lenders to pledge cash and/or loans as additional collateral. To meet these margin calls, CRE lenders are expected to have sold loans and securities at unfavorable prices.

Ladder Capital too experienced a number of margin calls on its collateral and is expected to have sold its loans at below par. In fact, the Zacks Consensus Estimate for income for sale of loans, net, is pegged at $7.6 million for the first quarter. This indicated a sequential plunge of 53.4%.

Additionally, amid travel disruptions and social distancing measures, the hospitality and retail sectors have been severely impacted. As of Dec 31, 2019, 22% of Ladder Capital’s total loans had exposure to hotel and retail sectors. This is expected to result in high loan defaults and non-accruals, thereby, impacting the company’s earnings. Its first-quarter earnings are expected to witness a 12.5% year-over-year decline.

A significant portion of the company’s portfolio consists of floating rate loans. Amid the low interest rate scenario in the first quarter, the floating rate loans are anticipated to have resulted in a decline in its NII. Notably, the Zacks Consensus Estimate for first-quarter 2020 NII is pinned at $30.74 million. This indicates a decline of 12.7% from the prior-year figure.

Lastly, the company has been witnessing downward estimate revision for first-quarter 2020 EPS. In fact, the Zacks Consensus Estimate for first-quarter EPS has declined 7.9% downward to 35 cents in a month, reflecting analysts’ bearish sentiments. In addition, it suggests a12.5% year-over-year decline.

Earnings Whispers

Here is what our quantitative model predicts:

Ladder Capital does not have 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 Ladder Capital is 0.00%.

Zacks Rank: Ladder Capital carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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:

Hannon Armstrong Sustainable Infrastructure Capital, Inc.  HASI, scheduled to release earnings on May7, has an Earnings ESP of +5.52% and a Zacks Rank of 3 at present.

SBA Communications Corporation SBAC, set to report quarterly numbers on May 5, currently has an Earnings ESP of +0.67% and a Zacks Rank of 3.

Americold Realty Trust COLD, expected to release earnings results on May 7, currently has an Earnings ESP of +9.74% and a Zacks Rank #3.

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