Best stocks to invest in – Is UDR Inc. (UDR) Poised for a Beat This Earnings Season?



Best stocks to invest in

We expect UDR Inc. UDR to beat expectations when it reports third-quarter 2016 results after the closing bell on Oct 25.

Last quarter, the Denver, CO-based residential REIT reported in-line results. UDR Inc. boasts an average beat of 0.61% for the trailing four quarters.

For the third quarter, the company expects funds from operations (“FFO”) per share in the range of 44–46 cents. The Zacks Consensus Estimate for third-quarter FFO per share is currently pegged at 45 cents.

The graph below reflects the surprise history of the company.

Why a Likely Positive Surprise?


Our proven model shows that UDR 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 as is the case here.

Zacks ESP: Earnings ESP, which represents the percentage difference between the Most Accurate estimate of 46 cents and the Zacks Consensus Estimate of 45 cents, is +2.22%. This is a major indicator of a likely positive surprise.

Zacks Rank: UDR Inc. carries a Zacks Rank #3. This combination of UDR’s Zacks Rank #3 and 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?

UDR Inc. has a vast experience in the residential real estate market. Despite supply issues cropping up in some of its markets, the company is well poised for growth. Its superior portfolio in targeted U.S. markets and disciplined capital allocation should drive its results in the to-be-reported quarter as well as going forward.

In fact, UDR Inc. is expected to benefit from strengthening multi-family apartment fundamentals and favorable demographic trends. There is a demand for rental apartments from both new millennial households and empty nesters. Along with this, the improving job market is driving the demand for apartments. As such, UDR Inc. is expected to experience growth in same-store net operating income in the third quarter.

Stocks to Consider

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

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

Post Properties Inc. PPS, which slated to release third-quarter earnings results on Oct 31, has an Earnings ESP of +1.24% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Essex Property Trust Inc. ESS, which is slated to release third-quarter 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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