Realty Income Corporation (O Quick QuoteO - Free Report) , a leader in the net lease sector, is slated to release fourth-quarter and full-year 2024 results on Feb. 24, after market close. The Zacks Consensus Estimate for the to-be-reported quarter’s adjusted funds from operations (FFO) and revenues is pegged at $1.06 per share and $1.35 billion, respectively.

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The Zacks Consensus Estimate for fourth-quarter 2024 adjusted FFO per share has remained unrevised at $1.06 over the past two months. However, it suggests 4.95% growth year over year. The Zacks Consensus Estimate for quarterly revenues implies a notable year-over-year increase of 25.7%.

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For the current year, the Zacks Consensus Estimate for Realty Income’s revenues is pegged at $5.29 billion, implying a rise of 29.6% year over year. The consensus mark for 2024 adjusted FFO per share is pegged at $4.19, calling for an expansion of around 4.75% on a year-over-year basis.

Realty Income’s management projected 2024 adjusted FFO per share in the band of $4.17-$4.21. 

Over the trailing four quarters, the company’s adjusted FFO per share surpassed the Zacks Consensus Estimate on one occasion, met twice and missed in the remaining period, the average miss being 0.01%. This is depicted in the graph below:

Here is What Our Quantitative Model Predicts for O

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 3 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 Stock

The Fed’s hawkish stance, signaling an extended period of macroeconomic normalization and higher borrowing costs, has affected the more rate-sensitive stocks like REITs, and Realty Income has not been an exception. The stock was further punished amid rising concerns that President Trump's proposed tariffs could negatively impact some of Realty Income's retail tenants. 

However, with a diversified tenant base, long-term net leases and a focus on recession-resistant sectors, Realty Income is well-positioned for steady growth. Its accretive buyouts and diversification, backed by a healthy balance sheet, bode well for long-term growth.

Resilient Business Model to Aid Q4 Performance

Realty Income's earnings for the fourth quarter are expected to demonstrate consistent operational performance and a well-diversified, high-quality real estate portfolio. Retail properties contribute 79.4% of its annualized contractual rent, while 14.6% comes from industrial assets. The remaining rent is spread across various sectors, including gaming, data centers, country clubs and others, highlighting the portfolio's diverse property mix.

A substantial 73% of the portfolio is made up of non-discretionary, low-cost and service-based retail tenants, with 17% being non-retail and 10% falling under other tenant categories. Around 90% of Realty Income's total rent is expected to remain largely unaffected by economic downturns and the rise of e-commerce, indicating a strong ability to maintain steady revenues. This solid foundation is likely to have supported robust rental income growth during the fourth quarter.

Realty Income's fourth-quarter earnings are anticipated to reflect strong occupancy rates, bolstered by the company's high-quality real estate portfolio and strategic approach to acquisitions. As of Sept. 30, 2024, the portfolio's occupancy stood at 98.7%, with management projecting it to stay above 98% for the full year. Additionally, the company’s full-year forecasts included an estimated same-store rent growth of around 1%. The solid occupancy rate, driven by careful underwriting and a focus on premium assets, is expected to have played a key role in maintaining steady revenues and operational stability during the quarter.

Realty Income is expected to have maintained a strong balance sheet this quarter, bolstering its growth initiatives. However, elevated interest expenses may have posed a challenge.

Expansionary Efforts to Drive O Stock

Realty Income’s growth strategy appears promising, fueled by its expanding international footprint, especially in Europe, which paves the way for long-term expansion. Its foray into non-traditional asset classes, such as gaming and data centers, underscores a forward-thinking approach. Major acquisitions like Encore Boston Harbor and Bellagio Las Vegas, along with a partnership with Digital Realty (DLR Quick QuoteDLR - Free Report) for data centers, emphasize its dedication to high-growth sectors. The January 2024 merger with Spirit Realty Capital enhances its scale, tenant diversity and leadership position in the REIT market.

Consistent with its strategy, Realty Income’s robust property acquisition volume at favorable investment spreads bolstered its performance in the first nine months of 2024. This trend is likely to have continued in the fourth quarter, supporting top-line growth and enhancing earnings potential.

Backed by strong investment activity in the first nine months of the year and a robust pipeline for the fourth quarter, management projected a full-year investment volume of approximately $3.5 billion.

The Zacks Consensus Estimate for quarterly revenues is pegged at $1.35 billion, which suggests a 25.7% increase from the year-ago quarter’s reported figure. The consensus mark for rental revenues (excluding reimbursable) is pegged at $1.23 billion, up from $1.20 billion recorded in the prior quarter and $963.14 million in the year-ago quarter.

O’s Price Performance & Valuation

Shares of Realty Income have rallied 5.8% so far in the year, closing at $56.52 yesterday on the NYSE. The stock has outperformed the Zacks REIT and Equity Trust - Retail industry’s growth of 1.6% and the S&P 500 composite’s rise of 3.8% over the same time frame.

YTD Price Performance

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Despite the price rally, Realty Income shares are still cheap. The stock is trading at a forward 12-month price-to-FFO of 12.99X, below the retail REIT industry average of 16.48X but slightly ahead of its one-year median of 12.81X. Although Realty Income stock is currently trading at a discount compared to its industry peers like Agree Realty Corporation (ADC Quick QuoteADC - Free Report) , this valuation disparity might not be as favorable as it seems.

Forward 12 Month Price-to-FFO (P/FFO) Ratio

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How Should You Play Realty Income Ahead of Q4 Earnings?

Realty Income's core business is thriving, and a favorable investment climate is reinforcing its dedication to an aggressive growth strategy, all while maintaining reliable dividend payouts. It enjoys a trademark of the phrase “The Monthly Dividend Company” and has increased its dividend 23 times in the past five years.

The stock is currently trading at a discount compared to its peers, but it may be prudent to wait for more clarity on policy changes, inflation trends and their potential impact on Realty Income before making any decisions. For current shareholders, maintaining their investment could be a sensible option, considering the company’s strong history of monthly dividend growth and focus on promising property sectors.

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.