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Will Rise in Supply Impact SL Green's (SLG) Q3 Earnings?

SL Green Realty Corp. SLG is slated to report third-quarter 2017 results on Oct 18, after the market closes.

Last quarter, this office real estate investment trust (REIT) reported better-than-expected 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 4.29%. The graph below depicts this surprise history.

SL Green Realty Corporation Price and EPS Surprise

Let’s see how things have shaped up for this announcement.

Factors to Consider

The company has been boosting its capacity to offer office space through an opportunistic investment policy. This bodes well for SL Green amid an improving economy and job-market environment.

In addition, per a recent study from CBRE Group Inc. CBG, the U.S. office vacancy rate contracted 10 basis points (bps) in the to-be-reported quarter amid growth in office-using jobs. In most of the U.S. office markets, vacancy declined, taking the national office vacancy rate close to its post-recession low.

However, new supply in the Manhattan area could negate the positive effect of decreasing vacancy rates. The Zacks Consensus Estimate for third-quarter property net operating income (NOI) and net rental revenues are currently pegged at $183 million and $281 million, nearly in line with the previous quarter reported figures.  

Also, over the past seven days, the Zacks Consensus Estimate of FFO per share for the third quarter edged down 0.6% to $1.57, reflecting lack of any solid catalyst for being overtly positive on the stock.
Earnings Whispers

Our proven model does not conclusively show that SL Green 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.

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

Zacks ESP: The Earnings ESP for SL Green is -1.34%.

Zacks Rank: SL Green’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.

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 Oct 17, has an Earnings ESP of +0.31% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Host Hotels & Resorts, Inc. HST, slated to release third-quarter results on Nov 1, has an Earnings ESP of +1.49% and a Zacks Rank #3.

Cousin Properties Incorporated CUZ, scheduled to report quarterly numbers on Oct 25, has an Earnings ESP of +1.13% 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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CBRE Group, Inc. (CBG): Free Stock Analysis Report
Host Hotels & Resorts, Inc. (HST): Free Stock Analysis Report
Prologis, Inc. (PLD): Free Stock Analysis Report
Cousins Properties Incorporated (CUZ): Free Stock Analysis Report
SL Green Realty Corporation (SLG): Free Stock Analysis Report
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