Real estate investment trust (“REIT”) Vornado Realty Trust VNO is expected to report second-quarter 2015 results on Aug 3, after the market closes.
The company posted a negative earnings surprise of 2.52% in the preceding quarter, despite recording a positive average surprise of 3.55% for the trailing four quarters.
Let’s see how things have shaped up for this announcement.
Factors to Consider This Quarter
Vornado management believes that it will take time for the Washington D.C. market to recover. In first-quarter 2015, same store EBITDA in Washington D.C. segment edged down 0.2% year over year. Also, management expects full-year 2015 comparable EBITDA for the Washington, D.C. portfolio to remain flat with 2014 level.
During 2010–2014, the company’s total operating expenses experienced an upward trend. For first-quarter 2015, total operating expenses were $254.5 million, up 7.6% year over year. We believe this rising trend will continue in the near term.
On the other hand, on Jan 15, Vornado completed the spin-off of its shopping center business into a publicly traded REIT named Urban Edge Properties. In our opinion, the creation of two focused REITs would help the company efficiently leverage the improving fundamentals of each asset type. Vornado, which has been subject to criticism for venturing into too many sectors simultaneously, would now be able to focus exclusively on office properties and retail shops in Washington and Manhattan.
However, Vornado’s activities during the quarter were inadequate to win analysts’ confidence. Consequently, the Zacks Consensus Estimate remained unchanged at $1.24 per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that Vornado 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 $1.24. This translates into an Earnings ESP of 0.00%.
Zacks Rank #3: Vornado’s Zacks Rank #3, when combined with a zero 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:
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment