Will Dismal Q1 Earnings Hit General Growth (GGP) Stock?

Retail real estate investment trust (“REIT”) General Growth Properties, Inc. GGP is expected to report first-quarter 2016 results on May 2, after the market closes.

Last quarter, the company delivered a positive surprise of 2.38%. For the trailing four quarters, General Growth Properties beat estimates in two quarters and met in the other two, posting an average positive surprise of 1.31%. The Zacks Consensus Estimate for first-quarter funds from operations (“FFO”) per share is currently pegged at 35 cents.

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

Factors to Consider

General Growth Properties has a solid portfolio of high-quality retail properties across attractive locations in the U.S. that enjoy high demand from retailers. The portfolio is complemented by flagship urban retail properties that are also in demand. Moreover, its solid tenant base and portfolio repositioning efforts augur well.

However, the lag in revenues clearly remains a concern. In fact, revenue growth in recent quarters has remained restricted, failing to surpass estimates. Also, retail sales lacked luster in first-quarter 2016.

Moreover, increasing consumer spending on online platforms has emerged as a pressing concern for retail REITs, as the trend is curtailing demand for the retail real estate space. The company also faces competition from its peers. While it strives to counter such pressure through various initiatives, we believe that the implementation of such measures require considerable upfront expenditure, which might limit near-term growth in profit margins.

General Growth Properties’ activities during the quarter could not gain analyst confidence. Consequently, the Zacks Consensus Estimate remained unchanged at 35 cents over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that General Growth Properties will beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 35 cents. Hence, the Earnings ESP, which represents a difference between them, is 0.00%.

Zacks Rank: General Growth Properties has a Zacks Rank #4. This rank along with a 0.00% ESP makes us skeptical about any earnings surprise.

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.

Stocks to Consider

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

Essex Property Trust Inc. ESS has an Earnings ESP of +1.14% and a Zacks Rank #2. The company will report results on Apr 28.

Host Hotels & Resorts, Inc. HST has an Earnings ESP of +2.63% and a Zacks Rank #3. The company will report first-quarter 2016 results on Apr 29.

Taubman Centers, Inc. TCO has an Earnings ESP of +3.53% and a Zacks Rank #3. The company will release results on May 2.

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.

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