What's In Store For Public Storage (PSA) In Q3 Earnings?

Public Storage (NYSE:PSA) is slated to report third-quarter 2016 results on Oct 26, after the market closes.

Last quarter, this self-storage real estate investment trust (“REIT”) had missed the Zacks Consensus Estimate by 1.68%. Over the trailing four quarters, the company has exceeded estimates in two occasions and missed in the other two, resulting in an average negative earnings surprise of 0.92%.

Presently, the Zacks Consensus Estimate for the third-quarter funds from operations (“FFO”) per share is pegged at $2.50.

Will Public Storage be able to overcome challenges this time and post a surprise? Or will a challenging backdrop hurt its financials this earnings season? Let’s see how things have shaped up for this announcement.

Factors to Consider

Public Storage has a strong brand image and is a recognized name in the self-storage industry in the U.S. Its strong presence in key cities serves as a major growth driver. Acquisition initiatives are expected to help in propagating growth. Further, it has managed to create a significant presence in the European markets as well, through the Shurgard Storage Centers buyout.

As such, in the to-be-reported quarter, the company remains well poised to experience growth in same-store revenues, backed by a rise in realized annual rent per occupied square foot and increased occupancy levels.

However, the company has been experiencing rising supply in some of its markets, which is affecting its revenue growth to some extent. In fact, it operates in a highly fragmented market in the U.S., with intense competition from numerous private, regional and local operators. This limits its power to raise rents and turn on more discounting. Moreover, the challenging economic environment is also anticipated to curtail any robust uplift in the performance of its European business.

Finally, Public Storage’s performance was inadequate to gain analysts' confidence during the quarter. As a result, the Zacks Consensus Estimate for the third quarter fell a cent to $2.50 over the last seven days.

Earnings Whispers

Our proven model does not conclusively show that Public Storage 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: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at $2.50. This leads to an Earnings ESP of 0.00%.

Zacks Rank: Public Storage carries a Zacks Rank #3. While a favorable rank increases the predictive power of ESP, a zero ESP itself makes surprise prediction difficult.

We caution against stocks with 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 you may want to consider, as our model shows that they have the right combination of elements to post a positive surprise this quarter:

UDR Inc. (NYSE:UDR) has an Earnings ESP of +2.22% and a Zacks Rank #3. The company will release results on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

PS Business Parks Inc. (NYSE:PSB) , slated to release earnings results on Oct 25, has an Earnings ESP of +1.43% and a Zacks Rank #2.

Post Properties Inc. (NYSE:PPS) will report its earnings on Oct 31. It 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.


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