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What's in Store for STORE Capital's (STOR) Earnings in Q4?

Zacks Equity Research

STORE Capital Corporation STOR is set to report fourth-quarter 2018 results before the market opens on Feb 21. 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 2.17% with respect to FFO per share.

The company has a decent surprise history. It surpassed estimates in each of the trailing four quarters, average positive surprise being 2.91%. 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

STORE Capital has guided for its 2018 adjusted FFO per share within the $1.81-$1.84 range. The Zacks Consensus Estimate for the same is currently pinned at $1.83.

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

Factors to Consider

STORE Capital, which is engaged in the acquisition, investment and management of Single Tenant Operational Real Estate, has emerged as one of the fastest growing net-lease REITs. The company has ownership of a large, well-diversified portfolio, comprising investments in more than 2,000 property locations, the bulk of which are profit centers.

STORE Capital’s tenant roster includes companies from retail, service and manufacturing sectors. Its portfolio estates include restaurants, furniture stores, early childhood education centers, movie theaters and health clubs, as well as sporting goods stores.

The company enjoys broad-based demand for its real estate capital solutions. On the acquisition front, the company is active and its fourth-quarter results are likely to mirror benefits from the increase in the size of the real estate investment portfolio. Increase in property locations and customer base are likely to drive its top-line growth. Further, with active portfolio management, the company is likely to maintain a solid portfolio with low delinquencies and vacancies in the fourth quarter. It also maintains adequate financial flexibility, enjoying access to the equity and debt markets.

Amid these, the company’s fourth-quarter revenues are pinned at $134.2 million, indicating a 17.9% increase from the prior-year quarter. Moreover, the Zacks Consensus Estimate for FFO per share for the quarter under review is 47 cents, reflecting 9.3% year-over-year growth.

However, declining mall traffic, store closures and retailers’ bankruptcies have made the retail real estate market turbulent. In fact, there is stiff competition from alternate channels of purchasing goods and services, including online-service providers and retailers. Therefore, 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 fourth-quarter FFO per share remained unrevised at 47 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:

Hersha Hospitality Trust HT, scheduled to release earnings on Feb 25, has an Earnings ESP of +3.81% and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Americold Realty Trust COLD, slated to release fourth-quarter results on Feb 21, has an Earnings ESP of +12.94% and holds a Zacks Rank of 3.

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.

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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