Kimco Realty (KIM) Q2 Earnings: What's In Store For Stock?

Kimco Realty Corporation (NYSE:KIM) is slated to report second-quarter 2016 results on Jul 27, after the market closes. We expect the release to lead to stock movement.

Last quarter, this New Hyde Park, NY-based retail real estate investment trust (“REIT”) came up with an inline result. The company has a mixed record of earnings surprises in the four trailing quarters, with a positive average earnings surprise of 1.94%. The Zacks Consensus Estimate for second-quarter funds from operations (“FFO”) per share is currently 38 cents.

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

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Factors to Consider

Kimco’s premium properties in high-growth areas, presence of well-capitalized retailers in its tenant roster and investments in high-quality neighborhood and community shopping centers augur well. Moreover, amid an improvement in demand for small shops, the company’s present focus on enhancing occupancy of this category of retail assets is also encouraging.

Notably, retail real estate market fundamentals remain stable in Q2. Per a CBRE Group, Inc. (NYSE:CBG) study, national retail availability rate has declined to the lowest level since 2008, amid reviving retail sales. In the second quarter, retail availability averaged 10.9%, down 10 basis points (bps) sequentially and 30 bps from a year ago. Encouragingly, in two-third of the U.S. markets, retail availability tightened and this trend is expected to continue backed by the solid job market report for June and strong momentum in retail spending.

Amid such an environment, Kimco’s average base rent for the U.S. portfolio is expected to have improved consistently in the second quarter. With demand/supply dynamics favorable, leasing spreads are projected to have grown while small-shop occupancy is expected to have remained solid.

Kimco also recently disclosed second-quarter 2016 deals worth over $1.0 billion, with sales aggregating $696.0 million that included disposition of 34 shopping centers, totaling 4.3 million square feet, and one land parcel. Specifically, the company sold interests in 22 Canadian shopping centers. It remains on track with its strategic 2020 Vision, making joint-venture buyouts and progressing on its simplification efforts, reducing the number of joint ventures (JV) and particularly pruning its Canadian portfolio.

Though such efforts are encouraging for the long term, the earnings-dilution led by high disposition activity cannot be averted. These might hurt the company’s growth momentum in the to-be-reported quarter.

Kimco’s activities during the quarter could not gain adequate analyst confidence. Consequently, the Zacks Consensus Estimate for the second quarter remained unchanged at 38 cents over the last 30 days.

Earnings Whispers

Our proven model does not conclusively show that Kimco will beat estimates 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. This is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 38 cents. Hence, the Earnings ESP, which represents the percentage difference between the two, is 0.00%.

Zacks Rank: Although the company’s Zacks Rank #3 increases the predictive power of ESP, its zero ESP makes a 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 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 post a positive surprise this quarter:

Taubman Centers, Inc. (NYSE:TCO) has an Earnings ESP of +7.22% and a Zacks Rank #3. The company will release results on Jul 28.

Regency Centers Corp. (NYSE:REG) has an Earnings ESP of +1.25% and a Zacks Rank #3. The company will release results on Aug 2.


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.