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Why is Earnings Beat Unlikely for SL Green (SLG) in Q1?

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SL Green Realty Corp. SLG is slated to report first-quarter 2018 results on Apr 18, 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) met its FFO estimates. The office landlord experienced an increase in occupancy rate in its Manhattan portfolio. However, the company’s Q4 results reflected an overall fall in revenues.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in one occasion, missed in another and met in the remaining two. The company delivered an average positive surprise of around 1.2% during 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 have declined 7.5% over the past six months compared with the industry’s descend of 11.1%.

Factors That Might Influence Q1 Results

The company has been enhancing 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.

Nonetheless, the company faces intense competition from developers, owners and operators of office properties, and other commercial real estate, including sublease space available from its tenants. This restricts its ability to attract and retain tenants at relatively higher rents than its competitors. Further, elevated supply of office space is adding to its woes.

Amid these, the Zacks Consensus Estimate for first-quarter property net rental revenues is currently pegged at $262 million, reflecting a decline of 1.3% from the previous-quarter figure. However, the Zacks Consensus Estimate for investment income is projected at $48.4 million, indicating 7.2% growth sequentially.

Over the past seven days, the Zacks Consensus Estimate for FFO per share for the first quarter increased marginally to $1.65, reflecting analysts’ bullish sentiments. Also, it denotes a projected year-over-year improvement of 5.1%.

Earnings Whispers

Our proven model cannot conclusively predict if SL Green will beat the Zacks Consensus Estimate this time. That’s because it doesn’t have the right combination of two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase 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.

Zacks ESP: The company has an Earnings ESP of -0.23%.

Zacks Rank: SL Green carries a Zacks Rank #3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of an earnings beat.

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

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:

Taubman Centers, Inc. TCO, slated to release first-quarter results on Apr 26, has an Earnings ESP of +0.47% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PS Business Parks, Inc. PSB, scheduled to release earnings on Apr 24, has an Earnings ESP of +0.67% and a Zacks Rank #3.

Simon Property Group, Inc. SPG, slated to release quarterly numbers on Apr 27, has an Earnings ESP of +0.63% and a Zacks Rank #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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