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Is Realty Income (O) Stock a Buy Before Q2 Earnings?
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Realty Income Corporation (O - Free Report) , a leader in the net lease sector with more than 15,450 commercial real estate properties, is slated to release second-quarter 2024 results on Aug 5 after market close. The Zacks Consensus Estimate for the to-be-reported quarter’s adjusted funds from operations (FFO) and revenues is pegged at $1.05 per share and $1.31 billion, respectively.
Realty Income’s activities during the soon-to-be-reported quarter were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the second-quarter 2024 adjusted FFO per share has been revised upward over the past two months and suggests 5% growth year over year. The Zacks Consensus Estimate for quarterly revenues implies a notable year-over-year increase of 28.3%.
Analysts also seem bullish about Realty Income’s prospects, with the consensus mark for both the 2024 and 2025 adjusted FFO per share moving north.
Image Source: Zacks Investment Research
Over the trailing four quarters, the company’s adjusted FFO per share surpassed the Zacks Consensus Estimate on two occasions, met once and missed in the remaining period, the average surprise being 0.51%. This is depicted in the graph below:
Our proven model does not conclusively predict a surprise in terms of FFO per share for Realty Income this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Realty Income currently carries a Zacks Rank of 2 and has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors Shaping Realty Income’s Q2 Results
Realty Income enjoys stable operating performance in its high-quality, diversified global real estate portfolio. The portfolio is well-diversified with respect to property types, with 79.6% of annualized contractual rent coming from retail properties, 14.7% from industrial and the rest coming from gaming, agriculture, office and country clubs.
Moreover, 73% of the portfolio belongs to non-discretionary, low price point and /or service-oriented retail tenants, 17% to non-retail and 10% to other tenants. What is encouraging is that 90% of the total rent is resilient to economic downturns and/or isolated from e-commerce pressures. This is likely to have supported robust rental revenue generation in the second quarter.
Realty Income’s quest for external growth has also resulted in the company completing its all-stock merger transaction with Spirit Realty Capital, Inc. in January 2024, which added to its size, scale and diversification, enabling it to expand its scope for future growth. Also, as part of its diversification efforts, in November 2023, Realty Income entered into a JV with Digital Realty (DLR - Free Report) to facilitate the development of two build-to-suit data centers in Northern Virginia.
The solid property acquisitions volume at decent investment spreads has aided the company’s performance so far, and this trend is likely to have continued in the second quarter, boosting the company’s top line.
Further, given Realty Income’s solid underlying real estate quality and record of prudent underwriting at acquisitions, occupancy at the company’s properties is anticipated to have remained high. As of Mar 31, 2024, its portfolio occupancy was 98.6%, and we expect occupancy to have remained above 98% in the to-be-reported quarter.
The Zacks Consensus Estimate for quarterly revenues is pegged at $1.31 billion, which suggests a 28.3% increase from the year-ago quarter’s reported figure. The consensus mark for rental revenues (excluding reimbursable) is pegged at $1.22 billion, up from $1.14 billion recorded in the prior quarter and $907.5 million in the year-ago quarter.
Realty Income is anticipated to have maintained a robust balance sheet position in the quarter, supporting its growth endeavors, though higher interest expenses during the quarter are likely to have been a spoilsport.
Price Performance & Valuation
Realty Income recently experienced a significant upturn in its stock price, gaining 10.6% over the past month. It outperformed the Zacks REIT and Equity Trust - Retail industry’s growth of 8.8%, while the S&P 500 composite declined 1.9% over the same time frame.
One Month Price Performance
Image Source: Zacks Investment Research
From a valuation perspective, Realty Income shares present an attractive opportunity. Despite the recent rally, O is still considered undervalued. This implies that the market is yet to fully recognize or price the company’s potential growth prospects or earnings potential.
Currently, O is trading at a forward 12-month price-to-FFO, which is a commonly used multiple for valuing retail REITs, of 13.49X, at a discount to the industry average of 15.32X. The stock is also trading at a discount to its industry peer Agree Realty Corporation’s (ADC - Free Report) current forward 12-month P/FFO of 16.90X.
Forward 12 Month Price-to-FFO (P/FFO) Ratio
Image Source: Zacks Investment Research
Evaluating Realty Income’s Potential
With Realty Income being sensitive to changes in the interest rate, the latest rate cut expectation is drawing enthusiasm from investors for this stock. Therefore, with us approaching the actual rate cut and considering the subsequent reductions, this REIT seems well-poised for multiple expansions.
Obviously, elevated rates imply high borrowing costs, and so a cut is always welcome for REITs, including Realty Income. Also, it enjoys a trademark of the phrase “The Monthly Dividend Company” and has increased its dividend 23 times in the past five years. Specifically, after the first-quarter 2024 earnings release, the company came up with two dividend hike announcements.
On top of that, Realty Income’s underlying business is performing well and generating considerable FFO, giving the company the impetus to go for guidance raise for earnings, becoming ambitious with respect to investments, with more focus on European markets, alongside raising dividends. Therefore, this REIT is well-poised to ride the growth trajectory.
Conclusion
Regardless of the results of Realty Income’s upcoming earnings report and how the stock reacts, it continues to be a solid long-term investment choice due to its strong fundamentals. Positive sentiments of analysts are also echoed in the upward estimate revision trends, and despite the recent rally, the valuation still looks cheap. Therefore, parking your hard-earned money in Realty Income will be a prudent decision before the price moves significantly away from its current level.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Is Realty Income (O) Stock a Buy Before Q2 Earnings?
Realty Income Corporation (O - Free Report) , a leader in the net lease sector with more than 15,450 commercial real estate properties, is slated to release second-quarter 2024 results on Aug 5 after market close. The Zacks Consensus Estimate for the to-be-reported quarter’s adjusted funds from operations (FFO) and revenues is pegged at $1.05 per share and $1.31 billion, respectively.
Realty Income’s activities during the soon-to-be-reported quarter were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for the second-quarter 2024 adjusted FFO per share has been revised upward over the past two months and suggests 5% growth year over year. The Zacks Consensus Estimate for quarterly revenues implies a notable year-over-year increase of 28.3%.
Analysts also seem bullish about Realty Income’s prospects, with the consensus mark for both the 2024 and 2025 adjusted FFO per share moving north.
Image Source: Zacks Investment Research
Over the trailing four quarters, the company’s adjusted FFO per share surpassed the Zacks Consensus Estimate on two occasions, met once and missed in the remaining period, the average surprise being 0.51%. This is depicted in the graph below:
Realty Income Corporation Price and EPS Surprise
Realty Income Corporation price-eps-surprise | Realty Income Corporation Quote
Here is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict a surprise in terms of FFO per share for Realty Income this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Realty Income currently carries a Zacks Rank of 2 and has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors Shaping Realty Income’s Q2 Results
Realty Income enjoys stable operating performance in its high-quality, diversified global real estate portfolio. The portfolio is well-diversified with respect to property types, with 79.6% of annualized contractual rent coming from retail properties, 14.7% from industrial and the rest coming from gaming, agriculture, office and country clubs.
Moreover, 73% of the portfolio belongs to non-discretionary, low price point and /or service-oriented retail tenants, 17% to non-retail and 10% to other tenants. What is encouraging is that 90% of the total rent is resilient to economic downturns and/or isolated from e-commerce pressures. This is likely to have supported robust rental revenue generation in the second quarter.
Realty Income’s quest for external growth has also resulted in the company completing its all-stock merger transaction with Spirit Realty Capital, Inc. in January 2024, which added to its size, scale and diversification, enabling it to expand its scope for future growth. Also, as part of its diversification efforts, in November 2023, Realty Income entered into a JV with Digital Realty (DLR - Free Report) to facilitate the development of two build-to-suit data centers in Northern Virginia.
The solid property acquisitions volume at decent investment spreads has aided the company’s performance so far, and this trend is likely to have continued in the second quarter, boosting the company’s top line.
Further, given Realty Income’s solid underlying real estate quality and record of prudent underwriting at acquisitions, occupancy at the company’s properties is anticipated to have remained high. As of Mar 31, 2024, its portfolio occupancy was 98.6%, and we expect occupancy to have remained above 98% in the to-be-reported quarter.
The Zacks Consensus Estimate for quarterly revenues is pegged at $1.31 billion, which suggests a 28.3% increase from the year-ago quarter’s reported figure. The consensus mark for rental revenues (excluding reimbursable) is pegged at $1.22 billion, up from $1.14 billion recorded in the prior quarter and $907.5 million in the year-ago quarter.
Realty Income is anticipated to have maintained a robust balance sheet position in the quarter, supporting its growth endeavors, though higher interest expenses during the quarter are likely to have been a spoilsport.
Price Performance & Valuation
Realty Income recently experienced a significant upturn in its stock price, gaining 10.6% over the past month. It outperformed the Zacks REIT and Equity Trust - Retail industry’s growth of 8.8%, while the S&P 500 composite declined 1.9% over the same time frame.
One Month Price Performance
Image Source: Zacks Investment Research
From a valuation perspective, Realty Income shares present an attractive opportunity. Despite the recent rally, O is still considered undervalued. This implies that the market is yet to fully recognize or price the company’s potential growth prospects or earnings potential.
Currently, O is trading at a forward 12-month price-to-FFO, which is a commonly used multiple for valuing retail REITs, of 13.49X, at a discount to the industry average of 15.32X. The stock is also trading at a discount to its industry peer Agree Realty Corporation’s (ADC - Free Report) current forward 12-month P/FFO of 16.90X.
Forward 12 Month Price-to-FFO (P/FFO) Ratio
Image Source: Zacks Investment Research
Evaluating Realty Income’s Potential
With Realty Income being sensitive to changes in the interest rate, the latest rate cut expectation is drawing enthusiasm from investors for this stock. Therefore, with us approaching the actual rate cut and considering the subsequent reductions, this REIT seems well-poised for multiple expansions.
Obviously, elevated rates imply high borrowing costs, and so a cut is always welcome for REITs, including Realty Income. Also, it enjoys a trademark of the phrase “The Monthly Dividend Company” and has increased its dividend 23 times in the past five years. Specifically, after the first-quarter 2024 earnings release, the company came up with two dividend hike announcements.
On top of that, Realty Income’s underlying business is performing well and generating considerable FFO, giving the company the impetus to go for guidance raise for earnings, becoming ambitious with respect to investments, with more focus on European markets, alongside raising dividends. Therefore, this REIT is well-poised to ride the growth trajectory.
Conclusion
Regardless of the results of Realty Income’s upcoming earnings report and how the stock reacts, it continues to be a solid long-term investment choice due to its strong fundamentals. Positive sentiments of analysts are also echoed in the upward estimate revision trends, and despite the recent rally, the valuation still looks cheap. Therefore, parking your hard-earned money in Realty Income will be a prudent decision before the price moves significantly away from its current level.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.