What’s in the Cards for UDR Stock This Earnings Season?

UDR Inc. UDR is slated to report fourth-quarter and 2017 results on Feb 6, after the market closes. Revenues and funds from operations (FFO) per share are expected to grow year over year.

Last quarter, this Denver, CO-based residential real estate investment trust (REIT) delivered in-line FFO per share. Results reflect growth in revenues from same-store and stabilized, non-mature communities.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on one occasion and met estimates in the other three, the average beat being nearly 0.6%. The graph below depicts this surprise history:

United Dominion Realty Trust, Inc. Price and EPS Surprise

United Dominion Realty Trust, Inc. Price and EPS Surprise | United Dominion Realty Trust, Inc. Quote

Shares of UDR have underperformed the industry in the last six months. While the company’s shares have lost 9%, the industry has witnessed a decline of 8%.

Earnings Whispers

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

Zacks ESP: UDR has an Earnings ESP of -2.08%. This is because the Most Accurate estimate is 47 cents whereas the Zacks Consensus Estimate is pegged at 48 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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

Factors to Consider

UDR boasts a vast experience in the residential real estate market. Additionally, it has a superior portfolio in targeted U.S. markets and adheres to disciplined capital allocation. These are likely to drive results in the to-be-reported quarter.

Specifically, the company is also anticipated to benefit from favorable demographic trends. There is a steady demand for rental apartments from both new millennial households and empty nesters. Along with this, the healthy job market is estimated to drive demand for apartments.

Per a study by the real estate technology and analytics firm — RealPage — the U.S. apartment market reported moderate rent growth for the calendar year 2017 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, remaining stable year over year.

However, we remain apprehensive about UDR’s performance as the company has been dealing with escalating deliveries in a number of its markets. This remains a concern as elevated levels of supply curtail a landlord’s ability to demand higher rents and result in lesser absorption. Consequently, concession levels are likely to remain at the higher end while pricing power of UDR is expected to remain limited in the quarter.

Moreover, 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 for the soon-to-be-reported quarter remained unchanged at 48 cents, over the past month. Nevertheless, this indicates a 4.4% increase year over year. For the fourth quarter, management projects FFO per share in the band of 47-49 cents.

The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $251.4 million, indicating a year-over-year improvement of 3.5%.

For full-year 2017, the Zacks Consensus Estimate for revenues stands at $988.1 million. The consensus estimate for FFO per share is $1.86, reflecting a year-over-year increase of 3.9%. Also, management expects FFO per share in the range of $1.86-$1.88.

Stocks That Warrant a Look

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

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

Diamondrock Hospitality Company DRH is scheduled to report quarterly numbers on Feb 28. The stock has an Earnings ESP of +4.76% and a Zacks Rank #3.

Weingarten Realty Investors WRI, slated to release quarterly numbers on Feb 21, has an Earnings ESP of +0.41% and a Zacks Rank of 3.

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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