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Why an Earnings Beat Is Likely for SL Green (SLG) in Q4

Zacks Equity Research

SL Green Realty Corp. SLG is slated to report fourth quarter and 2017 results on Wednesday, Jan 24, after the market closes. While funds from operations (FFO) per share will likely increase on a year-over-year basis, revenues are expected to decline.

Last quarter, this real estate investment trust (REIT) delivered a negative surprise of 5.1%. The company’s Q3 results reflect a decline in rental revenues and steep fall in investment income. Also, the office landlord exited the quarter with lower liquidity.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in one occasion, met in another and missed in the remaining two. The company delivered an average positive surprise of around 1% over this period. The graph below depicts this surprise history:

SL Green Realty Corporation Price and EPS Surprise

SL Green Realty Corporation Price and EPS Surprise | SL Green Realty Corporation Quote

Shares of SL Green declined 7.9% over the past six months compared with the industry’s descend of 3.9%.

Earnings Whispers

Our proven model shows that SL Green is likely to beat estimates this time around because it has the right combination of the two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) to beat estimates, and SL Green has the right mix.

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

Zacks ESP: The Earnings ESP for SL Green is +0.34%.

Zacks Rank: SL Green’s Zacks Rank #3 when combined with a positive ESP, makes us reasonably confident of a positive surprise.

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

Factors That Might Influence Q4 Results

The company has been boosting its capacity to offer office space through an opportunistic investment policy. This bodes well for SL Green amid an improving economy and job-market environment. The Zacks Consensus Estimate for investment income is projected to be $48.7 million, indicating 1.7% growth sequentially.

In addition, per a recent study from CBRE Group, the U.S. office vacancy rate increased 10 basis points (bps) in the to-be-reported quarter. The elevation is due to the rise in supply and a minor loosening of the market. However, in most of the U.S. office markets, vacancy rates declined, taking the national office vacancy rate close to its post-recession low.

The Zacks Consensus Estimate for fourth-quarter property net rental revenues is currently pegged at $278 million, reflecting a 1.1% rise from the previous quarter figure.

Over the past 30 days, the Zacks Consensus Estimate for FFO per share for the fourth quarter increased marginally to $1.60, reflecting analysts’ bullish sentiments. Also, it reflects a year-over-year improvement of 11.9%.

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 they have the right combination of elements to report a positive surprise this quarter:

Alexandria Real Estate Equities ARE, scheduled to release earnings on Jan 29, has an Earnings ESP of +0.65% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

CubeSmart CUBE, slated to release fourth-quarter results on Feb 15, has an Earnings ESP of +1.10% and a Zacks Rank #3.

Diamondrock Hospitality Company DRH, scheduled to report quarterly numbers on Feb 28, has an Earnings ESP of +4.76% and a Zacks Rank #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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