HCP Inc. (HCP) Q2 Earnings: What's In Store For The Stock?

HCP Inc. (NYSE:HCP) is slated to report second-quarter 2016 results on Aug 9, before the opening bell.

Last quarter, this healthcare real estate investment trust (“REIT”) had reported in-line results. Over the trailing four quarters, the company exceeded estimates in three quarters, resulting in an average positive earnings surprise of 1.95%. The Zacks Consensus Estimate for the second-quarter funds from operations (“FFO”) per share is currently pegged at 70 cents.

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

Factors to Consider

HCP has a diversified, well-balanced portfolio in the healthcare sector. The company is expected to benefit from rising healthcare spending, and a growing aging population in the to-be-reported quarter.

Its same property portfolio cash net operating income (NOI) is projected to increase backed by improved occupancy, rate, and expense management. Further, strategic investments, tie-ups and acquisitions are anticipated to drive decent cash flows. However, growth might be hindered by cut-throat competition in its markets. Also, there is increased supply in the broader metropolitan statistical areas (MSAs).

Notably, in May, its Board of Directors approved the spin-off of the HCR ManorCare’s (“HCRMC”) portfolio of Skilled Nursing Facility (“SNF”) and assisted living assets, and other skilled nursing assets, into an independent and publicly-traded real estate investment trust (“SpinCo”), creating more values for shareholders.

In fact, the deal will enable HCP to enhance its portfolio quality and focus more on its core businesses of Senior Housing, Life Science and Medical Office. Notably, HCP’s core portfolio comprises diverse operators and tenants primarily from the private-pay sector.

However, overall, HCP’s performance during the quarter was inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate remained unchanged at 70 cents per share over the last 30 days.

Earnings Whispers

Our proven model does not conclusively show that HCP will beat on earnings this quarter. 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. That is not the case here as you will see below.

Zacks ESP: HCP has an Earnings ESP of 0.00% – the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.

Zacks Rank: HCP has a Zacks Rank #2 (Buy).

Despite a favorable Zacks rank, a zero ESP makes surprise prediction difficult.

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

Stocks to Consider

Here are a few stocks in the broader Finance sector, of which REIT is a part, that you may want to consider instead, as our model shows that they have the right combination of elements to post a positive surprise this quarter:

Parkway Properties Inc. (NYSE:PKY) has an Earnings ESP of +6.45% and a Zacks Rank #3. The company will release its results on Aug 8.

Bank of Montreal (TO:BMO) has an Earnings ESP of +2.24% and a Zacks Rank #2. The company is slated to report its earnings on Aug 23.

Sun Life Financial Inc. (TO:SLF) has an Earnings ESP of +1.47% and a Zacks Rank #2. The company will come with its results on Aug 10.

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.