What To Expect From Welltower (HCN) This Earnings Season?

Welltower Inc. (NYSE:HCN) is slated to report third-quarter 2017 results before the market opens on Nov 7. While the company’s funds from operations (FFO) per share are anticipated to grow over the year-ago quarter, its revenues might witness a decline.

Last quarter, this healthcare real estate investment trust (REIT) reported better-than-expected FFO per share. Moreover, senior housing operating same-store net operating income (SSNOI) grew 3.5% year over year in the quarter.

Over the trailing four quarters, Welltower posted in-line FFO in one occasion and beat estimates in the other three, recording an average positive surprise of 0.9%. The graph below depicts the surprise history:

Welltower Inc. Price and EPS Surprise

Nonetheless, year to date, Welltower’s stock has underperformed the industry it belongs to. While the company’s shares have gained 1.8%, the industry has recorded 4.9% growth.

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

Factors to Influence Q3 Results

Welltower’s strategy of expanding its seniors housing portfolio in top metro markets, specifically in the West Coast is anticipated to benefit the company in the quarter to be reported. The Zacks Consensus Estimate for third-quarter revenues from senior housing operating portfolio is currently pegged at $678 million. In addition to this, the estimate for net operating income from the senior hosing operating net operating income (NOI) of $222 million reflects remarkable growth of 12.7% from $197 million recorded in the prior quarter.

Welltower’s efforts to enhance its healthcare real estate portfolio quality through prudent asset allocation and disposal, along with a diversified portfolio, are anticipated to drive its performance in the quarter under review. Additionally, rising senior citizen population will likely prove conducive to growth.

Further, the Zacks Consensus Estimate for third-quarter rental revenues is pegged at $357 million, nearly flat with the prior-quarter figure.

However, Welltower’s activities during the quarter failed to gain adequate analyst confidence. Consequently, the Zacks Consensus Estimate for FFO for the quarter remained unchanged at $1.05 over the past month.

Earnings Whispers

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

(You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.)

Zacks ESP: The Earnings ESP for Welltower is 0.00%.

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

Stocks That Warrant a Look

Here are a few stocks in the REIT space that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this time around:

Lexington Realty Trust (NYSE:LXP) , slated to release third-quarter results on Nov 7, has an Earnings ESP of +2.34% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

EPR Properties (NYSE:EPR) ,scheduled to report its numbers on Nov 8, has an Earnings ESP of +0.93% and a Zacks Rank of 3.

RLJ Lodging Trust (NYSE:RLJ) , set to release third-quarter figures on Nov 8, has an Earnings ESP of +1.35% and a Zacks Rank of 3.

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