Healthcare real estate investment trust (“REIT”) Ventas, Inc. VTR is expected to report third-quarter 2015 results on Oct 23, before the market opens. Last quarter, the company delivered a positive surprise of 1.72%.
For the trailing four quarters, Ventas posted an average positive surprise of 2.2%. In fact, the stock surpassed the estimates on all four occasions. The Zacks Consensus Estimate for the third-quarter funds from operations (“FFO”) per share is currently pegged at $1.10.
Let’s see how things have shaped up for this announcement.
Factors to Consider This Quarter
In recent times, Ventas has undertaken a spate of acquisition and redevelopment activities. Though beneficial over the long term, such activities entail huge expenses that will affect the company’s near-term performance to some extent. The same might get reflected in the third-quarter 2015 results.
Further, a large portion of Ventas’ revenues is generated from a handful of tenants, thus exposing the company to concentration risks. If one of these important tenants runs into financial difficulty, the company’s earnings could be negatively affected.
However, Ventas boasts one of the largest and most diversified portfolios in the healthcare sector with exposure to all types of facilities, which allows it to capitalize on a wide range of opportunities.
Also, health expenditure is anticipated to rise in the coming years with senior citizens incurring higher medical expenses compared to the average population. Therefore, in the wake of retiring baby boomers, Ventas is expected to benefit from this trend.
Earnings Whispers
Our proven model does not conclusively show that Ventas will beat earnings this quarter. This 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.
Zero Zacks ESP: Both the Most Accurate Estimate and the Zacks Consensus Estimate currently stand at $1.10, which translates into an Earnings ESP of 0.00%.
Zacks Rank #5: Ventas’ Zacks Rank #5 (Strong Sell), when combined with 0.00% Earnings ESP, makes surprise prediction difficult.
Note that, 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 momentum.
Stocks to Consider
You could consider stocks in the REIT sector that have the combination of a positive Earnings ESP and a favorable Zacks Rank, and are hence poised for an earnings beat this quarter:
Digital Realty Trust Inc. DLR has an Earnings ESP of +0.78% and a Zacks Rank #3. The company will report third-quarter results on Oct 29.
Hospitality Properties Trust HPT has an Earnings ESP of +1.08% and a Zacks Rank #2. The company will report third-quarter results on Nov 3.
Acadia Realty Trust AKR has an Earnings ESP of +2.86% and a Zacks Rank #3. The company will report third-quarter results on Nov 3.
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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