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What's in the Offing for AvalonBay (AVB) in Q3 Earnings?

AvalonBay Communities, Inc. AVB is slated to report third-quarter 2017 results on Oct 30, after the market closes.

Last quarter, this residential REIT delivered a negative surprise of 2.34% in terms of funds from operations (“FFO”) per share.

In the trailing four quarters, the company surpassed estimates on one occasion and missed in the other three. This resulted in an average negative surprise of 0.7%. The graph below depicts the surprise history of the company:

AvalonBay Communities, Inc. Price and EPS Surprise

Let’s see how things are shaping up for this announcement.

Factors to Consider

AvalonBay is well-poised to grow on the back of a rising demand from household formation and favorable demographics. Also, increasing consumer confidence on the back of job growth, rising wages and a healthier balance sheet, promise strong prospects for this Arlington, VA-based REIT.

Notably, per a study by the real estate technology and analytics firm, RealPage, Inc. RP, the U.S. apartment market reported stable rent growth, while occupancy remained healthy in the third quarter. However, the levels of rent growth have moderated from the previous years. For new leases, effective rents inched up 0.9% during the quarter and 2.6%, annually. Further, apartment occupancy came in at 95.5% for the third quarter across the country’s top 100 metros.

AvalonBay is also likely to continue experiencing high occupancy. Although the pace of rental growth has slowed down from the bygone years, it is now likely to achieve stability.

However, there is presence of elevated supply in quite a few of the company’s markets. Hence, any robust growth in its stabilized portfolio is likely to remain restricted in the yet-to-be-reported quarter. Further, delay in construction activities in the development portfolio is anticipated to affect the company’s lease-up net operating income in the near term.

However, the Zacks Consensus Estimate for third-quarter revenues is pegged at $538.5 million, denoting an expected increase of 4.3% year over year.

Additionally, prior to third-quarter earnings release, there is lack of any solid catalyst for raising overt optimism about the company’s business activities and prospects. As such, the Zacks Consensus Estimate for FFO per share in the soon-to-be-reported quarter remained unchanged at $2.26, over the past month.

Earnings Whispers

Our proven model does not conclusively show that AvalonBay is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a bullish Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: AvalonBay has an Earnings ESP of -5.63%, representing the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: AvalonBay’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident about an earnings surprise.

Stocks That Warrant a Look

Here are a few stocks worth considering in the REIT sector, which contain the right combination of elements to deliver a positive surprise this quarter:

CoreSite Realty Corp. COR, slated to release third-quarter results on Oct 26, has an Earnings ESP of +1.19% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Extra Space Storage Inc. EXR is scheduled to release earnings on Nov 1 with an Earnings ESP of +1.31% and a Zacks Rank of 2 as well.

Boston Properties, Inc. BXP is slated to release quarterly numbers on Nov 1. The company has an Earnings ESP of +0.39% and a Zacks Rank of 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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RealPage, Inc. (RP): Free Stock Analysis Report
AvalonBay Communities, Inc. (AVB): Free Stock Analysis Report
Boston Properties, Inc. (BXP): Free Stock Analysis Report
CoreSite Realty Corporation (COR): Free Stock Analysis Report
Extra Space Storage Inc (EXR): Free Stock Analysis Report
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