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What's in the Offing for AvalonBay (AVB) This Earnings?

Zacks Equity Research

AvalonBay Communities, Inc. AVB is slated to report first-quarter 2019 results on Apr 24, after the market closes. The company’s quarterly performance is likely to reflect growth in revenues as well as funds from operations (FFO) per share.

In the last reported quarter, this residential REIT performance narrowly missed expectations with respect to FFO per share but marked year-over-year improvement, as revenues from stabilized operating communities and development communities recorded growth.

Over the trailing four quarters, the company surpassed estimates in two occasions, met in another and missed in the other. This resulted in average positive surprise of 0.34%. The graph below depicts the surprise history of the company:

AvalonBay Communities, Inc. Price and EPS Surprise

AvalonBay Communities, Inc. Price and EPS Surprise | AvalonBay Communities, Inc. Quote

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

Factors to Consider

Per a recent study by the real estate technology and analytics firm — RealPage, Inc. — the U.S. apartment market managed to retain the rent momentum which was achieved in the later part of 2018, although new supply volumes remained elevated in the Jan-Mar quarter. Apartment rents were up 3.2% on an annual basis as of the first quarter of 2019. In fact, for six straight months, annual rent growth exceeded the 3% mark. In addition, occupancy came in at 95.2% in the quarter, expanding 10 basis points year on year.

AvalonBay too is expected to benefit from its high-quality assets in premium locations, favorable demographics, household formation, healthy economy and job-market growth. The company’s performance in the to-be-reported quarter is likely to display continued high occupancy. Furthermore, it is also expected to have retained its balance-sheet strength.

Notably, in an operating update for first-quarter 2019, AvalonBay stated that its total rental revenues for established communities were up 3% for the two-month period ending Feb 28, 2019. In addition, the company noted that established communities’ like-term effective rent change for the first two months of this year were 2.3% compared to 1.3% in the comparable period last year.

Also, the Zacks Consensus Estimate for first-quarter revenues is $579.2 million, denoting an expected 3.3% year-over-year increase. Further, the Zacks Consensus Estimate for FFO per share is currently pegged at $2.28, indicating 4.6% year-on-year growth.

Additionally, the company’s activities during the quarter gained analysts’ confidence to some extent. Consequently, the Zacks Consensus Estimate moved up a cent to $2.28 over the past 30 days.

However, new apartment deliveries are anticipated to have remained elevated in the company’s markets during the Jan-Mar quarter. Additionally, high concession activity amid elevated supply remains a concern.

In fact, per the above-mentioned study by RealPage, over the past six months, demand could not keep up with new product deliveries that aggregated 127,121 market-rate units in fourth-quarter 2018 and first-quarter 2019. The study also pointed out that market-rate apartment properties, under construction, have more than 403,000 units which will be completed over the next 18 months.

Here is what our quantitative model predicts:

AvalonBay 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 AvalonBay is +0.15%.

Zacks Rank: AvalonBay carries a Zacks Rank #3, currently.

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.

Other Stocks That Warrant a Look

Here are a few other 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:

Digital Realty Trust, Inc. DLR, slated to release first-quarter earnings on Apr 25, has an Earnings ESP of +1.27% and a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alexandria Real Estate Equities, Inc. ARE, scheduled to release earnings on Apr 29, has an Earnings ESP of +0.3% and a Zacks Rank #2.

Public Storage PSA, set to report quarterly numbers on May 1, has an Earnings ESP of +0.88% 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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AvalonBay Communities, Inc. (AVB) : Free Stock Analysis Report
Alexandria Real Estate Equities, Inc. (ARE) : Free Stock Analysis Report
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