Can Ventas (VTR) Surprise on Solid Sector Scenario? - Analyst Blog

Ventas Inc. (VTR) is slated to report third-quarter 2014 results on Oct 24, before the opening bell.

This healthcare real estate investment trust (REIT) has beaten the Zacks Consensus Estimate in 2 of the trailing 4 quarters with an average beat of 0.97%. The Zacks Consensus Estimate for the third-quarter funds from operations (FFO) has remained unchanged at $1.11 per share over the last 7 days.

Is the company poised for a winning quarter? Let's see how things are shaping up for this announcement.

Factors to Consider

We expect Ventas to benefit from its diversified portfolio, increasing healthcare spending and an aging population. Further, strategic acquisitions and decent cash flows would add momentum to the company's growth. The low rate environment is also expected to add to the boons. However, we anticipate the company's performance to be adversely impacted by cut-throat competition as well as rising expenses.

Notably, in August, Ventas completed the acquisition of 29 Canadian senior living communities from Holiday Retirement in order to facilitate the expansion of its international footprint and leverage the growing senior citizen population. The company is also slated to acquire its competitor, American Realty Capital Healthcare Trust Inc., in a stock and cash deal worth $2.9 billion.

These deals, in sync with the company's strategy of focusing on the private pay properties, are expected to strengthen its medical-office buildings footprint and international presence.

Earnings Whispers?

Our proven model does not conclusively show that Ventas will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below.

Zero Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.11 per share. Hence, the difference is 0.00%.

Zacks Rank #3: Ventas' Zacks Rank #3 (Hold), when combined with a 0.00% Earnings ESP makes surprise predictions difficult.

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

Other Stocks to Consider

You could consider other stocks in the REIT sector that have both a positive Earnings ESP and a favorable Zacks Rank:

American Capital Agency Corp. (AGNC) has an Earnings ESP of +5.20% with a Zacks Rank #1 (Strong Buy). The company will report its third-quarter results on Oct 27.

Mack-Cali Realty Corp. (CLI) has an Earnings ESP of +2.13% with a Zacks Rank #2 (Buy). The company will report its third-quarter results on Oct 23.

Hudson Pacific Properties, Inc. (HPP) has an Earnings ESP of +6.90% with a Zacks Rank #2. The company will report its third-quarter results on Nov 3.

Note: 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.