Health Care REIT, Inc. HCN is slated to report second-quarter 2015 results on Aug 4, before the opening bell. Last quarter, this health care real estate investment trust (“REIT”) delivered in-line results.
In the trailing four quarters, HCN exceeded estimates on three occasions, with a positive average earnings surprise of 1.73%. The Zacks Consensus Estimate for the second quarter is currently pegged at $1.08 per share.
Let’s see how things are shaping up for this announcement.
Factors to Consider
We believe HCN’s opportunistic investments and strategic portfolio sell-outs will serve as growth drivers for the stock. In first-quarter 2015, the REIT concluded gross investments of over $2.2 billion.
In a bid to expand its footprint in Canada, HCN, along with Revera, Inc., agreed to acquire retirement communities’ provider, Regal Lifestyle Communities Inc. Valued at C$766 million or $623 million, the acquisition will be carried out through an existing 75/25 joint venture. The deal is expected to be immediately accretive to the company’s funds from operations (“FFO”) and funds available for distribution per share, with initial cash yield projected at 6.1%.
Further, in sync with the strategy of recycling capital through asset dispositions, and using the proceeds for expanding its high-quality health care real estate, HCN completed the sale of its life science portfolio, reaping an unlevered internal rate of return of 15%. All these transactions are expected to positively impact second-quarter 2015 results.
However, intense competition might restrict the company’s growth rate. Moreover, generation of notable revenues from few select tenants and governmental reimbursement programs add to its risks.
Earnings Whispers
Our proven model does not conclusively show that HCN 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. This is not the case here as you will see below.
Zero Zacks ESP: That is because both the Most Accurate estimate and the Zacks Consensus Estimate are at $1.08 per share.
Zacks Rank #3: HCN’s Zacks Rank #3, when combined with zero Earnings ESP, makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some stocks in the real estate industry that have the right combination of elements to post an earnings beat this quarter:
Hudson Pacific Properties, Inc. HPP has an Earnings ESP of +2.44% and a Zacks Rank #3. The company will report results on Aug 6.
Ashford Hospitality Trust, Inc. AHT, with an Earnings ESP of +4.35% and a Zacks Rank #1, will report results on Aug 6.
CorEnergy Infrastructure Trust, Inc. CORR, with an Earnings ESP of +29.41% and a Zacks Rank #2, will report results on Aug 10.
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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