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What's in the Cards for STORE Capital (STOR) in Q1 Earnings?

Zacks Equity Research

STORE Capital Corporation STOR is set to report first-quarter 2019 results before market open on May 2. Both its revenues and funds from operations (FFO) are anticipated to reflect year-over-year growth.

In the last reported quarter, this Scottsdale, AZ-based net-lease REIT delivered a positive surprise of 2.13% with respect to FFO per share.

The company has a solid surprise history. It surpassed estimates in each of the trailing four quarters, the average positive surprise being 2.23%. The graph below depicts the surprise history of the company:

STORE Capital Corporation Price and EPS Surprise

STORE Capital Corporation Price and EPS Surprise | STORE Capital Corporation Quote

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

Factors to Consider

STORE Capital is engaged in the acquisition, investment and management of Single Tenant Operational Real Estate. This REIT has emerged as one of the fastest growing net-lease REITs.

Notably, a healthy U.S. economy and job market gains are important catalysts for the retail real estate industry’s growth. In fact, in March, retail sales rebounded strongly from the decline suffered in the previous month. This added to the series of economic reports, which indicate that the economy is gathering steam after a soft start to the year. Consumer confidence is getting a boost, fueled by job growth and rising wages, thereby spurring demand for retail goods. This is anticipated to have sent positive ripple effects across the industry in the to-be-reported quarter.

STORE Capital too is expected to have enjoyed broad-based demand for its real estate capital solutions. The company is active on the acquisition front, and its first-quarter results are likely to mirror benefits from the increase in the size of the real estate investment portfolio. Its top line is likely to be driven by increase in property locations and customer base.

Moreover, with active portfolio management, the company is expected to have maintained a solid portfolio with low delinquencies and vacancies in the quarter. It also has adequate financial flexibility, enjoying access to the equity and debt markets.

Amid these, the company’s first-quarter revenues are pegged at $145.2 million, indicating a 21.1% increase from the year-ago reported figure. Moreover, the Zacks Consensus Estimate for FFO per share is 46 cents, implying 4.6% growth.

Nonetheless, the secular industry headwinds, including retailer downsizing and tenant bankruptcies are continuing to affect the retail real estate industry fundamentals. There is stiff competition from alternate channels of purchasing goods and services, including online-service providers and retailers. As such, businesses of the company’s tenants may be affected, which, in turn, have the capability to impact STORE Capital’s business as it leases real estate to service and retail businesses.   

Also, STORE Capital’s activities during the quarter were insufficient to secure analyst confidence. Consequently, the consensus estimate for first-quarter FFO per share remained unrevised at 46 cents in a month’s time.

Here is what our quantitative model predicts:

STORE 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 STORE Capital is 0.00%.

Zacks Rank: STORE Capital has a Zacks Rank of 2 (Buy), which increases the predictive power of ESP. However, we also need a positive ESP to be 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:

Public Storage PSA, scheduled to release earnings on May 1, has an Earnings ESP of +1.15% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Welltower, Inc. WELL, set to report quarterly results on Apr 30, has an Earnings ESP of +0.58% and a carries a Zacks Rank of 3.

Mid-America Apartment Communities, Inc. MAA, slated to report first-quarter results on May 1, has an Earnings ESP of +0.29% and holds a Zacks Rank of 3.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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