HCP Inc. (HCP) is slated to report third-quarter 2014 results on Nov 4, before the opening bell.
This healthcare real estate investment trust (REIT) has beaten the Zacks Consensus Estimate in 3 of the trailing 4 quarters with an average beat of 2.22%. The Zacks Consensus Estimate for the third-quarter funds from operations (FFO) has remained unchanged at 76 cents per share over the last 7 days.
Is the company poised for a winning quarter? Let’s see how things are shaping up for this announcement.
Factors to Consider
We expect HCP to benefit from its diversified portfolio, increasing healthcare spending and an aging population. Further, the strategic acquisitions, tie-ups and decent cash flows would add momentum to the company’s growth.
The low rate environment is also expected to add to the boons. Nevertheless, cut-throat competition and dependence on governmental healthcare programs for a number of its tenants and operators remain matters of concern for the company.
In the second quarter, HCP has extended its relationship with Brookdale Senior Living by creating a $1.2 billion continuing care retirement communities (CCRC) joint venture (JV) and amending the previous Emeritus leases. The partnership offers a solid growth platform with favorable dynamics in senior housing and good occupancy prospects.
Earnings Whispers?
According to our proven model, a stock has a higher probability of beating estimates if it has both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3. However, this is not the case here as you will see below.
Negative Zacks ESP: The Most Accurate estimate stands at 75 cents per share while the Zacks Consensus Estimate is pegged at 76 cents. Hence, the difference is negative 1.32%.
Zacks Rank #3: HCP has a Zacks Rank #3 (Hold).
The Earnings ESP for the company is negative 1.32% for the third quarter. This, when combined with its Zacks Rank #3, reduces the chance for a positive earnings surprise.
Notably, 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 momentum.
Other Stocks to Consider
You could consider other stocks in the REIT sector that have both a positive Earnings ESP and a favorable Zacks Rank:
Diamondrock Hospitality Co. (DRH) has an Earnings ESP of +4.35% with a Zacks Rank #2 (Buy). The company is scheduled to report third-quarter results on Nov 4.
Chatham Lodging Trust (CLDT) has an Earnings ESP of +2.90% with a Zacks Rank #3. The company will report third-quarter results on Nov 4.
Ryman Hospitality Properties, Inc. (RHP) has an Earnings ESP of + 5.06% with a Zacks Rank #2. The company is slated to report third-quarter results on Nov 4.
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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