Essex Property (ESS) To Post Q1 Earnings: What's In Store?

Essex Property Trust, Inc. (NYSE:ESS) is slated to report first-quarter 2017 results on Apr 27, after the market closes.

This residential real estate investment trust (“REIT”) generated a negative surprise of 0.35% in the prior quarter. However, over the trailing four quarters, the company beat the Zacks Consensus Estimate in three occasions, with an average beat of 1.12%. This is depicted in the graph below.

For first-quarter 2017, the company foresees core funds from operations (FFO) per share in the $2.80–$2.90 range. The Zacks Consensus Estimate for the same is currently pegged at $2.89.

Is the company poised for a winning quarter? Or will a challenging backdrop in the residential real estate market hurt its financials this earnings season? 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. In fact, it also enjoys a solid scale in the West Coast market. Moreover, demographic growth continues to be sound in the young adult age cohort, which has a higher propensity to rent. These are expected to drive demand for apartments in the company’s markets in the to-be-reported quarter.

However, there have been consistent apartment deliveries and a slowdown in employment trends 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, as well as hinder growth in occupancies. Overall, it is also anticipated to restrict the company’s growth in the quarter to-be-reported quarter.

Over the past three months, shares of Essex slightly outperformed the Zacks categorized REIT and Equity Trust – Residential industry. The shares logged in a return of 4.3%, against 3.9% growth recorded by the industry.



However, prior to the first-quarter earnings release, there is lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the first quarter remained unchanged at $2.89 over the past 60 days.

Earnings Whispers

Our proven model does not conclusively show that Essex Property will beat on earnings 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 $2.88 and the Zacks Consensus Estimate of $2.89, is -0.35%. 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 #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 they have the right combination of elements to report a positive surprise this quarter:

Boston Properties Inc. (NYSE:BXP) , slated to release first-quarter results on Apr 25, has an Earnings ESP of +0.67% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Public Storage (NYSE:PSA) , scheduled to release earnings on Apr 26, has an Earnings ESP of +0.41% and a Zacks Rank #3.

EPR Properties (NYSE:EPR) , slated to release earnings on May 2, has an Earnings ESP of +0.84% 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.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple (NASDAQ:AAPL) sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>