Kimco Realty (KIM) Q3 Earnings Preview: What's In Store?

Kimco Realty Corporation (NYSE:KIM) is slated to report third-quarter 2016 results on Oct 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 in-line results. The company has a mixed record of earnings surprises in the four trailing quarters, with a positive average earnings surprise of 0.75%.

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

Factors to Consider

Kimco remains on track with its strategic 2020 Vision. The company is making premium asset purchase in key metro markets in the U.S., executing joint-venture buyouts and progressing on its simplification efforts. Specifically, the company has been reducing the number of joint ventures and trimming its Canadian portfolio. In fact, riding high on its portfolio transformation activities, the company announced deals worth over $360 million in the third quarter. During the quarter, the company’s acquisitions totaled 1 million square feet of space, worth $292.8 million, of which the company’s share was $263.4 million

Kimco’s premium properties, located in high-growth areas and presence of well-capitalized retailers in its tenant roster augur well. Further, per a recent CBRE Group, Inc. (NYSE:CBG) study, during the quarter, average availability of retail space was 10.4%, down 20 basis points sequentially. However, demand for retail space in the country continues to grow as new construction remains relatively muted and retailers are combining their online and bricks-and-mortar operations. This indicates the continuation of a gradual, five-year recovery in the U.S. retail-property market.

Though encouraging for the long term, the earnings-dilution effect of 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 third quarter funds from operations (FFO) remained unchanged at 17 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 is pegged at 17 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 0.00% 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 two other REITs that you may want to consider as our model shows that they also have the right combination of elements to post an earnings beat this quarter:

Post Properties Inc. (NYSE:PPS) , slated to release earnings results on Oct 31, has an Earnings ESP of +1.24% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Armada Hoffler Properties, Inc. (NYSE:AHH) , slated to release earnings results on Nov 1, has an Earnings ESP of +4.17% 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.

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