AvalonBay Communities Inc. AVB is slated to report first-quarter 2015 results on Apr 27, after the market close. Last quarter, this residential real estate investment trust (“REIT”) delivered a 0.56% negative surprise.
However, in the trailing 4 quarters, AvalonBay has beat estimates in two out of four, with a positive average earnings surprise of 2.23%. The Zacks Consensus Estimate for the first quarter funds from operations (“FFO”) per share is currently pegged at $1.83.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Deliveries are expected to remain elevated in many regions in the quarter. Notably, the increase of supply in DC, which represents a notable part of the company’s same-store portfolio, remains a concern. This is because higher supply usually curtails the landlord’s capability to demand more rents and lesser absorption.
Yet AvalonBay is well poised to grow, given its solid portfolio of high-quality assets in premium locations with favorable demographics along its markets. The company also has a healthy balance sheet.
Earnings Whispers
Our proven model does not conclusively show that AvalonBay will beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: The Earnings ESP for AvalonBay is -1.09% – the difference between the Most Accurate estimate of $1.81 and the Zacks Consensus Estimate of $1.83.
Zacks Rank #3: AvalonBay’s Zacks Rank #3, when combined with a negative ESP, makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks That Warrant a Look
Here are some stocks in the REIT industry that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Armada Hoffler Properties, Inc. AHH carries a Zacks Rank #2 and has an Earnings ESP of +5.88%. It is scheduled to report results on Apr 30.
Public Storage PSA has an earnings ESP of +1.03% and a Zacks Rank #3. The company is slated to release earnings on Apr 30.
Host Hotels & Resorts, Inc. HST, with an Earnings ESP of +3.03% and a Zacks Rank #3, is scheduled to report results on Apr 30.
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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