AvalonBay (AVB) to Post Q4 Earnings: What's in the Offing?

AvalonBay Communities, Inc. AVB is slated to report fourth-quarter 2017 results on Jan 31, after the market closes.

Last quarter, this residential REIT witnessed a negative surprise of 3.10% in terms of funds from operations (FFO) per share.

In the trailing four quarters, the company surpassed estimates on one occasion and missed in the other three. This resulted in an average negative surprise of 1.36%. The graph below depicts the surprise history of the company:

AvalonBay Communities, Inc. Price and EPS Surprise
 

AvalonBay Communities, Inc. Price and EPS Surprise | AvalonBay Communities, Inc. Quote

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

Factors to Consider

Per a study by the real estate technology and analytics firm, RealPage, Inc. RP, the U.S. apartment market reported moderate rent growth for the calendar year and seasonal pricing cuts in the fourth quarter. While U.S. apartment rents increased at a modest rate of 2.5% in 2017, effective rents for new leases edged down 0.9% during the quarter. Admittedly, the levels of rent growth have moderated from the earlier years. However, national apartment occupancy came in at 95.1% at the end of fourth-quarter 2017, remaining stable year over year.

AvalonBay is well-poised to grow on the back of rising demand from household formation and favorable demographics. Also, increasing consumer confidence on the back of job growth, higher wages and a healthier balance sheet promise bright prospects for this Arlington, VA-based REIT.

In fact, the company is also likely to continue experiencing high occupancy. Although the pace of rental growth has slowed down from the bygone years, it is now likely to achieve stability. The Zacks Consensus Estimate for fourth-quarter revenues is currently pegged at $555.2 million, denoting an expected increase of 7.1% year over year.

However, fourth quarter is seasonally the slower one. Moreover, there is presence of elevated supply in quite a few of the company’s markets. Hence, any robust growth in its stabilized portfolio is likely to remain restricted in the yet-to-be-reported quarter. In addition, there is high concession activity amid higher supply, which remains a concern.

Additionally, prior to fourth-quarter earnings release, there is lack of any solid catalyst for raising optimism about the company’s business activities and prospects. As such, the Zacks Consensus Estimate for FFO per share in the soon-to-be-reported quarter remained unchanged at $2.24, over the past month. Nevertheless, this indicates a 5.7% increase year over year.

Earnings Whispers

Our proven model does not conclusively show that AvalonBay is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a bullish Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: AvalonBay has an Earnings ESP of -0.07%, representing the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

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

EPR Properties 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.

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