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What to Expect From AvalonBay (AVB) This Earnings Season?

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AvalonBay Communities, Inc. (AVB - Free Report) is slated to report third-quarter 2019 results on Oct 28, after the market closes. The company’s quarterly performance is likely to reflect growth in revenues as well as funds from operations (FFO) per share.

In the last reported quarter, this residential REIT performance missed estimates with respect to the FFO per share, reporting a negative surprise of 1.73%. Although, the company achieved increase in average rental rates, economic occupancy registered a decline.

Over the last four quarters, the company surpassed estimates on two occasions for as many misses. This resulted in an average negative surprise of 0.10%. 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. price-eps-surprise | AvalonBay Communities, Inc. Quote

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

Factors to Consider

The U.S. apartment market has put up an impressive performance in the past few months, successfully banking on the stellar rental-unit demand. While occupancy is hovering at a near-record level, rents continue to register a steady rise.

Per the latest report from real estate technology and analytics firm, RealPage, occupancy reached 96.3% as of third-quarter 2019, with an impressive leasing activity. The figure is not only up from the prior-year period’s 95.9%, but is also close to the all-time high of 96.4% attained almost two decades ago in late 2000. The warmer months definitely witness an uptick in apartment leasing activity. However, this year, the performance was robust, as demand was particularly strong.

With an uptick in occupancy, rent growth also seems to be steady. For new leases, rents were up 1.2% during the third quarter, driving the annual rent growth pace to 3% and monthly rents averaging $1,416.

Amid these, AvalonBay is expected to have benefited from its high-quality assets in premium locations, favorable demographics, household formation and job-market gains. The company is also likely to have gained from high home-ownership costs in several markets which hinder transition from renter to homeowner. As such, the company’s quarterly performance is likely to display growth in rents and high occupancy.

The Zacks Consensus Estimate for third-quarter revenues is $585.9 million, suggesting 1.7% year-over-year increase. Further, the Zacks Consensus Estimate for FFO per share is currently pinned at $2.35, indicating nearly 3.1% year-on-year growth. Furthermore, the company is expected to retain its balance-sheet strength.

However, the company’s activities during the quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate remained unchanged over the past 30 days.

Notably, new apartment deliveries are anticipated to have remained elevated in a number of the company’s markets during the July-September quarter. The high supply is likely to put pressure on rental rates. This apart, high concession activity amid elevated supply is a concern.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for AvalonBay this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although AvalonBay carries a Zacks Rank of 3, its Earnings ESP of -0.54% makes surprise prediction difficult.

Stocks That Warrant a Look

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

Ventas, Inc. (VTR - Free Report) , scheduled to release earnings on Oct 25, has an Earnings ESP of +0.96% and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Digital Realty Trust, Inc. (DLR - Free Report) , slated to report third-quarter results on Oct 29, has an Earnings ESP of +2.61% and currently carries a Zacks Rank of 3.

Apartment Investment and Management Company (AIV - Free Report) , set to report quarterly results on Oct 31, has an Earnings ESP of +0.6% and carries a Zacks Rank of 3, currently.

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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