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AvalonBay (AVB) Likely to Beat Q3 Earnings: Stock to Gain?


AvalonBay Communities, Inc. AVB is slated to report third-quarter 2016 results after the market closes on Oct 24. Last quarter, this residential real estate investment trust (“REIT”) had delivered a negative surprise of 2.9%.

AvalonBay lagged estimates in two of the four trailing quarters, with a negative average surprise of 0.2%. The Zacks Consensus Estimate for third-quarter funds from operations (“FFO”) is currently $2.12 per share.

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

AVALONBAY CMMTY Price and EPS Surprise


Why a Likely Positive Surprise?

Our proven model shows that AvalonBay is likely to beat estimates because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to beat estimates, and AvalonBay has the right mix.

Zacks ESP: The Earnings ESP, which represents the percentage difference between the Most Accurate Estimate of $2.14 and the Zacks Consensus Estimate of $2.12, is +0.94%. This is a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: AvalonBay’s Zacks Rank #3 when combined with a positive ESP makes us reasonably confident of a positive surprise this season.

Conversely, we caution against stocks with Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

What's Driving the Better-than-Expected Earnings?

Arlington, VA-based AvalonBay is mainly engaged in developing multifamily apartment communities for higher-income clients in high barrier-to-entry regions of the U.S. The company’s Class A assets enable the company to generate steady rental revenues.

Over the period of 2005–2015, the annualized core FFO per share grew 7.5% and exceeded that of the multifamily sector weighted average. Based on its strong fundamentals, this growth in FFO is likely to continue. For the third quarter, AvalonBay expects core FFO per share within $2.05–$2.11.

Stocks to Consider

Here are three other REITs that you may want to consider as our model shows that they also have the right combination of elements to post an earnings beat this quarter:

PS Business Parks Inc. PSB, slated to release earnings results on Oct 25, has an Earnings ESP of +1.43% and a Zacks Rank #2.

Post Properties Inc. PPS, slated to release earnings results on Oct 31, has an Earnings ESP of +2.47% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Essex Property Trust Inc. ESS, slated to release earnings results on Oct 27, has an Earnings ESP of +0.36% and a Zacks Rank #3.

Note: All EPS numbers presented in this write up represent funds from operations (FFO) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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