What's In The Cards For Welltower (HCN) In Q1 Earnings?

Welltower Inc. (NYSE:HCN) is slated to report first-quarter 2017 results before the market opens on May 5.

Last quarter, this healthcare real estate investment trust (“REIT”) delivered a 1.85% positive earnings surprise. In fact, over the trailing four quarters, the company surpassed estimates on all occasions, with an average beat of 1.12%.

The Zacks Consensus Estimate for first-quarter funds from operations (“FFO”) is currently pegged at $1.04.

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

Factors to Consider

Welltower’s efficiency in improving its healthcare real estate portfolio quality, along with lower leverage, are expected to serve as growth drivers for the company in the to-be-reported quarter. Further, its diversified portfolio in terms of geography, product type, operators and duration is likely to drive resilient growth in different cycles.

In addition, business relationship with experienced healthcare management companies and operators, and strategic investments bode well for the company. Welltower is also anticipated to manage its balance sheet well, lower leverage and retain adequate liquidity in the quarter.

However, increasing senior housing supply is likely to limit occupancy growth and taper pricing power. Also, expenses are anticipated to remain elevated in the quarter. As such, growth in net operating income is likely to remain limited. Moreover, as part of its portfolio-repositioning efforts, the company is aggressively disposing its assets. Though such efforts are commendable, but the earnings dilutive effects of these moves cannot be ignored.

Furthermore, Welltower’s activities during the quarter failed to gain adequate analyst confidence. In fact, over the past 60 days, the Zacks Consensus Estimate moved down 1%.

Further, over the past one year, shares of Welltower underperformed the Zacks categorized REIT and Equity Trust – Other industry. While Welltower’s shares declined 4.9%, the industry climbed 2.4% over this period.

Earnings Whispers

Our proven model does not conclusively show that Welltower 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 at least 3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the percentage difference between the Most Accurate estimate of $1.05 and the Zacks Consensus Estimate of $1.04, is pegged at 0.96%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Welltower currently has a Zacks Rank #4 (Sell).

Although a positive Earnings ESP is a meaningful and leading indicator of a likely positive surprise, but we must also have a favorable Zacks rank to be confident of an earnings beat.

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 That Warrant a Look

Here are a few stocks in the real estate sector that you may want to consider, as our model shows that they have the right combination of elements to report a positive surprise this quarter:

Hudson Pacific Properties, Inc. (NYSE:HPP) , slated to release first-quarter results on May 4, has an Earnings ESP of +2.08% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Saul Centers, Inc. (NYSE:BFS) , likely to release first-quarter results on May 4, has an Earnings ESP of +5.81% and a Zacks Rank #3.

The RMR Group Inc. (NASDAQ:RMR) , scheduled to release its second-quarter fiscal 2017 results on May 10, has an Earnings ESP of +2.27% 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.


Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>