Vornado (VNO) Q3 Earnings: What's In Store For The Stock?

Real estate investment trust (“REIT”) Vornado Realty Trust (NYSE:VNO) is expected to report third-quarter 2016 results on Oct 31, after the market closes.

Last quarter, Vornado reported a negative surprise of 3.20%. In the trailing four quarters, the company met estimates in one, recorded positive surprise in one and reported misses in the other two. The average negative surprise for the last four quarters was 2.50%. For the third quarter, funds from operation (“FFO”) is currently pegged at $1.28 per share.

Let’s see how things have shaped up for this announcement.

Factors to Consider

Vornado’s Class A office properties, concentrated over a few select high barrier-to-entry geographic markets offer the company huge growth prospects. The New York portfolio is performing well, driven by improved office market fundamentals and robust leasing activity.

Per a CBRE Group (NYSE:CBG), Inc. CBG study, during Q3, the national vacancy rate in the U.S. office sector remained at the lowest level since 2008. Further, the office market was aided by limited new construction and stable demand for space. Space additions by firms are occurring at a modest pace, with the suburbs outperforming the downtown markets.

Nevertheless, as part of its portfolio-repositioning efforts, Vornado is aggressively disposing its assets. Though such efforts to streamline its business are commendable, the earnings dilutive effects of these moves can’t be denied.

Earnings Whispers

Our proven model does not conclusively show that Vornado will beat 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. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Zacks ESP: The Most Accurate Estimate and the Zacks Consensus Estimate currently stand at $1.27 and $1.28, respectively, which translate into an Earnings ESP of -0.78%.

Zacks Rank: Vornado’s Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP as well to be confident about an earnings beat.

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 three 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:

Ashford Hospitality Prime, Inc. (NYSE:AHP) , scheduled to release results on Nov 2, has an Earnings ESP of +9.76% and a Zacks Rank #1. 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.

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

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.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>