What's in the Cards for STORE Capital's (STOR) Q1 Earnings?

STORE Capital Corporation STOR is set to report first-quarter 2020 earnings on May 5, after the bell. The company’s results are projected to display year-over-year increases in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Scottsdale, AZ-based net-lease REIT delivered a positive surprise of 6.38% with respect to FFO per share.

The company has a decent surprise history, having surpassed estimates in each of the trailing four quarters, resulting in an average beat of 5.32%. The graph below depicts the surprise history of the company:

STORE Capital Corporation Price and EPS Surprise

STORE Capital Corporation Price and EPS Surprise

STORE Capital Corporation price-eps-surprise | STORE Capital Corporation Quote

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

Factors to Consider

STORE Capital is engaged in the acquisition, investment and management of Single Tenant Operational Real Estate. This REIT has emerged as one of the fastest-growing net-lease REITs. STORE Capital has a diverse investment portfolio with more than 75% of its rents being derived from tenants that represent less than 1% of the company’s rents. Also, geographically, investments are spread across 49 states and majority of the company’s assets are centered in sub-urban marketplaces that offer solid scope to adhere to social distancing. This diversification is likely to have helped the company generate steady rental revenues in the first quarter. It also has adequate financial flexibility, enjoying access to the equity and debt markets.

The company is also active on the investment front and capital recycling, and its first-quarter results are likely to reflect benefits from the increase in the real estate investment portfolio size. Increase in property locations and customer base are anticipated to have bolstered its top line during the quarter under review.

In March, while issuing an update in light of the coronavirus pandemic, the company anticipated net investment activity of $225-$275 million for the first quarter, a large part of which has already been funded.

Amid these, the company’s quarterly revenues are pegged at $166.7 million, calling for an 11.5% increase from the year-ago reported figure.

However, despite all these efforts, the choppy retail real estate environment might have limited its growth momentum to some extent, as secular industry headwinds, including retailer downsizing and tenant bankruptcies, have been dampening industry fundamentals and affecting retail REITs.

There is stiff competition from alternate channels of purchasing goods and services and therefore, businesses of the company’s tenants might have been affected, in turn, marring STORE Capital’s business, as it leases real estate to service and retail businesses.   

Moreover, the heightening coronavirus crisis has forced several retailers to close their stores. Some retailers have also reduced store hours, while many others are keeping e-retail operations running as consumers are now increasingly opting for online purchases to avoid gathering in public spaces. However, the impact of such shutdowns and store closures are likely to be more pronounced on retail real estate fundamentals in the June-end quarter.

STORE Capital’s activities during the January-March period were insufficient to secure analyst confidence. The consensus estimate for first-quarter FFO per share remained unrevised at 49 cents in a month’s time. Nevertheless, the figure suggests a 2.1% increase year on year.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive surprise in terms of FFO per share for STORE Capital this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

STORE Capital currently carries a Zacks Rank #3 and has an Earnings ESP of -1.29%.

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

SBA Communications Corporation SBAC, set to report quarterly numbers on May 5, has an Earnings ESP of +0.67% and carries a Zacks Rank of 3 currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Extra Space Storage Inc. EXR, slated to release first-quarter earnings on May 6, has an Earnings ESP of +0.21% and carries a Zacks Rank of 3 at present.

Americold Realty Trust COLD, scheduled to release earnings results on May 7, has an Earnings ESP of +9.74% and currently holds a Zacks Rank #3.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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