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Essex Property (ESS) to Post Q2 Earnings: What's in Store?

Essex Property Trust, Inc. ESS is slated to report second-quarter 2017 results on Jul 27, after the market closes.

In the prior quarter, this San Mateo, CA-based residential real estate investment trust (“REIT”) generated a positive surprise of 1.73% in terms of funds from operations (“FFO”) per share. Results were backed by solid growth in revenues.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate in three occasions, with an average beat of 1.17%. This is depicted in the graph below:

For second-quarter 2017, the company estimates core FFO per share in the $2.82–$2.92 range. The Zacks Consensus Estimate for the same is currently pegged at $2.92.

Looking at the price performance, Essex Property’s shares have rallied 14.0% year to date, outperforming the industry’s gain of 6.6%.

Let’s see how things have shaped up for this announcement.

Factors to Consider

Essex has a strong property base and a sturdy balance sheet. The company’s substantial exposure to the West Coast market, which is home to several innovation and technology companies, is likely to offer ample scope to boost its top line in the to-be-reported quarter.

Moreover, demographic growth continues to be sound in the young adult age cohort, which has a higher propensity to rent. Also, improved economy and job market strengths are likely to act as a catalyst and drive demand for apartments in the company’s markets in the quarter in review.

However, although apartment deliveries may not peak in the quarter, the figure remains consistently high in the West Coast submarkets. Also, there is aggressive rental concessions provided at newly developed communities. This is expected to continue and moderate pricing power.

In addition, the company expects expenses to increase in the second quarter. Furthermore, due to capital markets activities, interest expense is predicted to be higher.

Nevertheless, over the past 30 days, the Zacks Consensus Estimate of FFO per share for the second quarter inched up 0.3% to $2.92, reflecting analysts’ bullish sentiments on the stock.

Earnings Whispers

Our proven model does not conclusively show that Essex Property will beat estimates this season. 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. However, that is not the case here as you will see below.

Zacks ESP: The Earnings ESP, which represents the percentage difference between the Most Accurate estimate of $2.90 and the Zacks Consensus Estimate of $2.92, is -0.69%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Essex Property currently has a Zacks Rank #2. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s negative ESP makes our surprise prediction difficult.  

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Liberty Property Trust LPT, slated to release second-quarter results on Jul 25, has an Earnings ESP of +1.61% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CyrusOne Inc. CONE, scheduled to release earnings on Aug 2, has a Zacks Rank #2 and an Earnings ESP of +2.70%.

Piedmont Office Realty Trust, Inc. PDM, slated to release earnings on Aug 2, has an Earnings ESP of +2.27% and a Zacks Rank #3.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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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Essex Property Trust, Inc. (ESS): Free Stock Analysis Report
Piedmont Office Realty Trust, Inc. (PDM): Free Stock Analysis Report
CyrusOne Inc (CONE): Free Stock Analysis Report
Liberty Property Trust (LPT): Free Stock Analysis Report
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