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SL Green (SLG) to Post Q2 Earnings: Is a Surprise in Store?


SL Green Realty Corp. SLG is likely to beat expectations when it reports second-quarter 2017 earnings on Jul 19, after the closing bell.

Last quarter, this office real estate investment trust (REIT) delivered in-line results with respect to funds from operations (“FFO”) per share.

Over the trailing four quarters, the company exceeded the Zacks Consensus Estimate in two occasions, met in another and missed in the other, with an average beat of around 3.62%. The graph below depicts this surprise history.

SL Green Realty Corporation Price and EPS Surprise

SL Green Realty Corporation Price and EPS Surprise | SL Green Realty Corporation Quote

Why a Likely Positive Surprise?

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

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP, which represents the percentage difference between the Most Accurate estimate of $1.63 and the Zacks Consensus Estimate of $1.62, is +0.62%. This is a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: SL Green’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 a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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

SL Green is the leading commercial property owner in New York City. The company’s high-quality office properties in proximity to midtown Manhattan’s key commuter stations and diverse tenant base are likely to help the company ride the growth curve. Moreover, its leasing activity is likely to remain decent amid an improving economy and job market environment.

In addition, per a recent report from CBRE Group Inc. CBG in second-quarter 2017, the U.S. office vacancy rate remained steady at 13% amid a balanced demand supply environment. In fact, in around half of the U.S. office markets, vacancy recorded a decline and the national office vacancy rate is hovering close to its post-recession low.

Also, SL Green made concerted efforts to diversify and tap opportunities in New York City’s premium retail locations, with its retail investments complementing the core office and structured finance businesses. Along with a solid balance sheet, such efforts are anticipated to drive the company’s top- and bottom-line growth in the quarter to be reported.

However, shares of SL Green declined 5.7% over the past three months compared with the Zacks categorized REIT and Equity Trust – Other industry’s descend of 1.8%. Nevertheless, over the past seven days, the Zacks Consensus Estimate of FFO per share for the to-be-reported quarter inched up 0.6% to $1.62, reflecting analysts’ bullish sentiments on the stock.

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 they have the right combination of elements to report a positive surprise this quarter:

Prologis Inc. PLD, scheduled to release earnings on Jul 18, has an Earnings ESP of +2.56% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Host Hotels & Resorts, Inc. HST, slated to release second-quarter results on Jul 26, has an Earnings ESP of +6.52% and a Zacks Rank #3.

Equity Residential EQR, slated to release earnings on Jul 25, has an Earnings ESP of +1.30% 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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