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What's in Store for Blackstone Mortgage's (BXMT) Q2 Earnings?

Zacks Equity Research

Blackstone Mortgage Trust, Inc. BXMT, formerly known as Capital Trust, Inc., is scheduled to report second-quarter 2019 earnings on Jul 23, after the closing bell. The company’s quarterly earnings per share (EPS) and net interest income (NII) are expected to decline year over year.

In the last reported quarter, this real estate finance company reported core earnings of 71 cents that surpassed the Zacks Consensus Estimate of 64 cents. Further, its book value per share as of Mar 31, 2019 was $27.32.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate on all four occasions. It delivered an average positive surprise of 13.3% during this period. The graph below depicts this surprise history:

Capital Trust, Inc. Price and EPS Surprise

Capital Trust, Inc. Price and EPS Surprise

Capital Trust, Inc. price-eps-surprise | Capital Trust, Inc. Quote

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

Factors at Play

Blackstone Mortgage’s investment programs focus on loans and securities backed by commercial real estate assets. The company enjoys a top-notch portfolio with specific focus on senior loans that is secured by institutional quality real estate. This will help the company generate attractive returns on equity (ROE) and enable it to maintain dividend growth.

In the quarter under review, the company raised around $307 million by issuing 8.6 million shares of common stock. These funds will likely be used to originate desirable commercial real estate mortgage loans. Further, the transaction is expected to be accretive to the company’s book value per share.

This April, the company closed a $500-million senior secured term loan facility, carrying an interest rate of LIBOR plus 2.50%. The loan matures in April 2026. This provides the company with higher funds and improves its financial flexibility. While the company originated or acquired $698.7 million of loans in first-quarter 2019, we anticipate the momentum to continue in the second quarter as well.

However, the company’s business model is such that declining interest rates will depress its net income. Furthermore, majority of the company’s loan portfolio earns a floating rate of interest. This makes Blackstone Mortgage’s core earnings sensitive to changes in interest rate, particularly LIBOR.

The decline in LIBOR rates during the quarter might affect the company’s portfolio yields and bottom line. In fact, the Zacks Consensus Estimate for the company’s June-end quarter NII is pegged at $101.2 million. This suggests a decline of 2.4% year over year.

In addition, prior to the second-quarter earnings release, the company is witnessing downward estimate revisions. As such, the Zacks Consensus Estimate of EPS for the quarter has been revised marginally downward to 66 cents over the past month, reflecting analyst bearish sentiment. Also, it calls for a year-over-year decline of 20.5%.

Earnings Whispers

Our proven model does not conclusively show that Blackstone Mortgage is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. That is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earning ESP: Blackstone Mortgage’s Earnings ESP is -1.89%.

Zacks Rank: The company currently carries a Zacks Rank of 4 (Sell), which decreases the predictive power of ESP.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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:

Highwoods Properties, Inc. HIW, scheduled to release earnings on Jul 23, has an Earnings ESP of +0.59% and carries a Zacks Rank #3, at present.

Ventas Inc. VTR, slated to report quarterly figures on Jul 26, has an Earnings ESP of +0.38% and carries a Zacks Rank of 2, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alexandria Real Estate Equities, Inc. ARE, set to release April-June quarter results on Jul 29, has an Earnings ESP of +0.15% and currently holds a Zacks Rank #2.

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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Capital Trust, Inc. (BXMT) : Free Stock Analysis Report
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