Why An Earnings Beat Is Likely For Alexandria (ARE) In Q4?

Alexandria Real Estate Equities (NYSE:ARE) is slated to report fourth-quarter 2017 results on Jan 29, after the market closes. The company’s funds from operations (FFO) per share as well as revenues are anticipated to be up year over year in the to-be-reported quarter.

Last quarter, this Pasadena, CA-based urban office real estate investment trust (REIT), which primarily focuses on collaborative life science and technology campuses, delivered a better-than-expected FFO per share.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate in two occasions, met in another and missed in the other. The company delivered an average positive surprise of around 0.3% during this period. The graph below depicts this surprise history:

Why a Likely Positive Surprise?

Our proven model shows that Alexandria is likely to beat estimates because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) to beat estimates, and Alexandria has the right mix.

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

Zacks ESP: The Earnings ESP, which represents the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.65%. This is a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: Alexandria’s Zacks Rank #3 further increases the predictive power of ESP and makes us reasonably confident of a positive surprise this season.

Factors That Might Influence Q4 Results

The fundamentals of the office real estate market remained decent in the fourth quarter. In fact, going by numbers, per a study by the commercial real estate services’ firm CBRE Group Inc. (NYSE:CBG) , although the overall U.S. office vacancy rate expanded 10 basis points (bps) to 13.0% during the quarter amid an uptick in supply, the national office vacancy rate still hovers near its post-recession low and vacancy continues to drop in majority of the U.S. office markets.

For Alexandria, which focuses on Class A properties concentrated in urban campuses, primarily for the life science and technology entities, the operating environment is likely to have remained favorable in the quarter under review. The locations of its properties are characterized by high barriers to entry and exit, and a limited supply of available space. The highly dynamic setting adds to the productivity and efficiency of the tenants.

Moreover, high demand for Class A properties in AAA locations is likely to have boosted the level of occupancy in the quarter under review. The company has been witnessing elevated demand for space in key life-science markets.

This trend is anticipated to have continued in the to-be-reported quarter as well and helped generate steady rental revenues from its properties. Also, Alexandria is expected to have adequate financial flexibility to cushion and enhance its market position.

The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $299.8 million, reflecting a 20.3% rise from the prior-year quarter figure. In addition, over the past 30 days, the Zacks Consensus Estimate for FFO per share for the quarter remained unchanged at $1.54. It reflects a year-over-year improvement of nearly 8.5%.

Alexandria’s shares have climbed 6.2% over the past six months, outperforming the industry’s loss of 3.2%.

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:

CubeSmart (NYSE:CUBE) , slated to release fourth-quarter results on Feb 15, has an Earnings ESP of +1.10% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks herethe complete list of today’s Zacks #1 Rank stocks here.

EPR Properties (NYSE:EPR) , expected to report quarterly numbers around Feb 27, has an Earnings ESP of +0.69% and a Zacks Rank of 3.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>