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Ventas (VTR) to Report Q2 Earnings: What's in the Cards?

Healthcare real estate investment trust (REIT) Ventas, Inc. VTR is expected to report second-quarter 2017 results on Jul 28, before the market opens.

Last quarter, this Chicago, IL-based healthcare REIT delivered a positive surprise of 1.96%. Results reflect decent growth in same-store cash net operating income (NOI). Also, the company made quality investments of over $1 billion in the quarter.

Further, Ventas posted an average positive surprise of 0.99% over the trailing four quarters, surpassing estimates twice and posting in-line results in the other occasions. The graph below depicts this surprise history:

Ventas, Inc. Price and EPS Surprise


Ventas, Inc. Price and EPS Surprise | Ventas, Inc. Quote

Looking at the price performance, Ventas’ shares have rallied 9.8% year to date, outperforming the industry’s gain of 3.2%.

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

Factors to Consider

Ventas is anticipated to benefit in the to-be-reported quarter from its diversification efforts, increasing healthcare spending and aging population. In addition, its strong balance sheet positions it well for growth.

Moreover, Ventas is focusing on quality acquisitions to fortify its position in the healthcare REIT industry. Particularly, university-based life science real estate is a new zone of investment that has grabbed attention and Ventas has, by now, already committed nearly $2 billion to this segment. Such investments offer the opportunity to capitalize on the growing health-care-driven research and development, supported by top-tier research universities.

Hike in interest rate is a concern for Ventas, as the company has considerable exposure to long-term leased assets. Rise in rate increases the cost of debt, which, in turn, adversely affects the profitability of the company. Moreover, rising supply of senior housing units is expected to have a pressure on pricing in some of the company’s markets.

Amid these, there was lack of any positive catalyst to become overtly positive on the stock and therefore, the Zacks Consensus Estimate of $1.05 remained unchanged over the past 60 days.  

Earnings Whispers

Our proven model does not conclusively show that Ventas will likely 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 at least 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 $1.04 and the Zacks Consensus Estimate of $1.05, is -0.95%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Ventas currently has a Zacks Rank #3. 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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