Federal Realty (FRT) To Post Q1 Earnings: What's In Store?

Federal Realty Investment Trust (NYSE:FRT) is set to report first-quarter 2017 results after the market closes on May 3.

Last quarter, this retail real estate investment trust (“REIT”) delivered a positive surprise of 0.69%. Over the trailing four quarters, the company topped estimates on three occasions, with a positive average surprise of 0.36%.

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

Factors to Consider

Federal Realty’s portfolio of premium retail assets – mainly situated in the major coastal markets from Washington, D.C. to Boston, San Francisco and Los Angeles – along with a diverse tenant base, positions it well for decent growth.

However, mall traffic continues to dwindle amid a rapid shift in customers’ shopping preferences with non-store sales rising significantly. This has become a pressing concern for retail REITs like Federal Realty. Moreover, the company expects first-quarter funds from operations (“FFO”) per share to be lower sequentially. This is because of an increase in its anchor repositioning strategies.

Particularly, amid a fast changing retail environment, the company is making concerted efforts to reposition, redevelop and re-merchandise its portfolio. This includes an upgrade of the tenant mix. While such efforts are a strategic fit for the long term, their short-term adverse impact on earnings cannot be bypassed.

Hence, 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. The Zacks Consensus Estimate of FFO per share for the to-be-reported quarter remained unchanged over the past 60 days.

Earnings Whispers

Our proven model does not conclusively show that Federal Realty 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 for Federal Realty is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.43. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Note that 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 to Consider

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:

Hudson Pacific Properties, Inc. (NYSE:HPP) , slated to release first-quarter results on May 4, has an Earnings ESP of +2.08% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

HCP Inc. (NYSE:HCP) , slated to release earnings on May 2, has an Earnings ESP of +2.08% and a Zacks Rank #3.

STORE Capital Corporation (NYSE:STOR) , scheduled to release earnings on May 4, has an Earnings ESP of +2.44% and a Zacks Rank #3.

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. All earnings per share numbers presented in this write up represent FFO per share.

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