Realty Income Corporation O, a leader in the net lease sector, is slated to release third-quarter 2024 results on Nov. 4 after market close. The Zacks Consensus Estimate for the to-be-reported quarter’s adjusted funds from operations (FFO) and revenues is pegged at $1.05 per share and $1.34 billion, respectively.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
The Zacks Consensus Estimate for the third-quarter 2024 adjusted FFO per share has remained unrevised at $1.05 over the past two months. However, it suggests 2.94% growth year over year. The Zacks Consensus Estimate for quarterly revenues implies a notable year-over-year increase of 29.3%.
Image Source: Zacks Investment Research
For the current year, the Zacks Consensus Estimate for Realty Income’s revenues is pegged at $5.30 billion, implying a rise of 30% year over year. The consensus mark for 2024 adjusted FFO per share is pegged at $4.20, calling for an expansion of around 5% on a year-over-year basis.
Over the trailing four quarters, the company’s adjusted FFO per share surpassed the Zacks Consensus Estimate on two occasions, met once and missed in the remaining period, the average surprise being 0.49%. This is depicted in the graph below:
Realty Income Corporation Price and EPS Surprise
Realty Income Corporation price-eps-surprise | Realty Income Corporation Quote
Here is What Our Quantitative Model Predicts for O:
Our proven model does not conclusively predict a surprise in terms of FFO per share for Realty Income this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
Realty Income currently carries a Zacks Rank of 2 and has an Earnings ESP of -1.06%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Factors Shaping Realty Income’s Q3 Results
Resilient Business Model to Aid Q3 Performance
Realty Income’s third-quarter earnings are anticipated to reflect its stable operating performance and well-diversified, high-quality real estate portfolio. With 79.4% of its annualized contractual rent generated from retail properties and 14.5% from industrial assets, the remainder is distributed across sectors like gaming, agriculture, office, data centers and country clubs, showcasing the portfolio's balance across property types.
A significant 73% of the portfolio comprises non-discretionary, low-price-point and service-oriented retail tenants, while 17% is non-retail and 10% comprises other tenant categories. 90% of Realty Income’s total rent is expected to be largely immune to economic downturns and e-commerce pressures, suggesting resilience in revenue generation. This strong positioning is likely to have contributed to solid rental income growth in the third quarter.
Expansionary Efforts to Drive O Stock
For the third quarter, Realty Income is poised to showcase growth driven by strategic external investments and diversification efforts. The company’s January 2024 all-stock merger with Spirit Realty Capital expanded Realty Income’s scale, size and diversification, setting the stage for enhanced growth opportunities. Its November 2023 joint venture with Digital Realty DLR for two build-to-suit data centers in Northern Virginia reflects Realty Income’s commitment to diversifying into high-demand asset classes.
Consistent with its strategy, Realty Income’s robust property acquisition volume at favorable investment spreads has bolstered performance year to date. This trend is likely to have continued in the third quarter, supporting top-line growth and enhancing earnings potential.
Realty Income’s third-quarter earnings are expected to reflect high occupancy levels supported by the company's strong real estate portfolio quality and disciplined acquisition strategy. As of June 30, 2024, Realty Income reported portfolio occupancy at 98.8%, and this metric is anticipated to have stayed above 98% in the third quarter. This high occupancy rate, sustained by prudent underwriting and a focus on quality assets, is likely to have contributed to steady revenues and operational stability in the quarter.
The Zacks Consensus Estimate for quarterly revenues is pegged at $1.34 billion, which suggests a 29.3% increase from the year-ago quarter’s reported figure. The consensus mark for rental revenues (excluding reimbursable) is pegged at $1.21 billion, up from $1.20 billion recorded in the prior quarter and $947.6 million in the year-ago quarter.
Balance Sheet Strength to Aid, Higher Interest Expenses Persist
Realty Income is expected to have maintained a strong balance sheet this quarter, bolstering its growth initiatives. However, elevated interest expenses may have posed a challenge.
O’s Price Performance & Valuation
After reaching a 52-week high last week, shares of Realty Income are trading 6.8% lower, closing at $60.48 yesterday on the NYSE. While it marks a 13% increase in the past six months, the stock has underperformed the Zacks REIT and Equity Trust - Retail industry’s growth of 19.3% and the S&P 500 composite’s rise of 15.4% over the same time frame.
Six Month Price Performance
Image Source: Zacks Investment Research
Realty Income shares currently offer an appealing valuation opportunity. The stock is trading at a forward 12-month price-to-FFO of 13.98X, below the retail REIT industry average of 16.58X and its five-year median of 16.71X. This discount provides an attractive entry point, with room for investors to benefit as the market potentially revalues the company’s growth and earnings potential.
Forward 12 Month Price-to-FFO (P/FFO) Ratio
Image Source: Zacks Investment Research
How Should You Play Realty Income Ahead of Q3 Earnings?
Realty Income’s core operations are performing well, and a supportive investment environment is driving its commitment to an ambitious growth strategy while upholding secure dividend distributions. Backed by a solid balance sheet and ample liquidity, Realty Income is well-prepared to step up its investment activity as market conditions continue to strengthen.
Also, it enjoys a trademark of the phrase “The Monthly Dividend Company” and has increased its dividend 23 times in the past five years.
Regardless of the results of Realty Income’s upcoming earnings report and how the stock reacts, it continues to be a solid long-term investment choice due to its strong fundamentals. The valuation still looks cheap. Parking your hard-earned money in Realty Income will be a prudent decision before the price moves significantly away from its current level.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>Digital Realty Trust, Inc. (DLR) : Free Stock Analysis Report
Realty Income Corporation (O) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
