What's in the Offing for Ventas (VTR) This Earnings Season?

Healthcare real estate investment trust (REIT) Ventas, Inc.VTR is scheduled to report third-quarter 2017 results on Oct 27, before the market opens. The company's funds from operations (FFO) and revenues are anticipated to be up year over year.

Last quarter, this Chicago, IL-based healthcare REIT delivered a positive surprise of 0.95%. Results reflected growth in same-store cash net operating income (NOI) across triple net-leased portfolio, senior housing operating portfolio and medical office building portfolio.

Further, Ventas posted an average positive surprise of 0.99% over the trailing four quarters, surpassing estimates twice and posting in-line results in the other occasions. The graph below depicts this surprise history:

Ventas, Inc. Price and EPS Surprise

Ventas, Inc. Price and EPS Surprise | Ventas, Inc. Quote

However, Ventas' shares have remained flat year to date, underperforming 4.8% growth registered by the industry .

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

Why a Likely Positive Surprise?

Our proven model shows that Ventas has a high chance of beating Q3 estimates. This is because the company has the right combination of two key ingredients for a possible earnings beat - a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.

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 Ventas is +0.13%. This is a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: Ventas currently carries a Zacks Rank of 3

Factors That Might Influence Q3 Results

Ventas is anticipated to benefit in the to-be-reported quarter from increasing healthcare spending and aging population. In fact, according to the Census Bureau, the number of citizens with more than 85 years of age is estimated to reach 8.7 million by 2030.

In addition, Ventas is focusing on achieving an optimum mix of healthcare real estate assets. The company has made sound efforts to expand its portfolio in the medical office life science real estate market. Such investments will likely help the company capitalize on the growing health-care-driven research and development, supported by top-tier research universities in the third quarter.

Also, Ventas is aggressively shedding its skilled nursing facilities (SNFs) portfolio. In the third quarter, the company completed the first phase of disposal of 36 SNFs. Since SNFs are becoming more susceptible to top-line pressure due to changes in medical billing procedure, companies are reducing exposure to this asset class. Following this sale, Ventas will be able to bring down its net operating income (NOI) from SNFs to just 1% of its aggregate NOI. Hence, such moves are anticipated to support the company's operating margins in the quarter under review.

Nonetheless, oversupply in some markets has burdened the performance of Ventas's senior housing assets. Since this curtails the landlords' pricing power and limits growth in occupancy level, we expect the prevalent oversupply situation to impact the company's third-quarter numbers.

However, there is lack of any positive catalyst to become overtly positive on the stock. Therefore, the Zacks Consensus Estimate of $1.04 remained unchanged over the past two months.

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:

CoreSite Realty Corporation COR , slated to release third-quarter results on Oct 26, has an Earnings ESP of +1.01% and a Zacks Rank of 2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Cousins Properties Inc. CUZ , scheduled to report quarterly numbers on Oct 25, has an Earnings ESP of +1.13% and a Zacks Rank of 3.

Boston properties, Inc. BXP , slated to release third-quarter earnings on Nov 1, has an Earnings ESP of +0.39% and a Zacks Rank of 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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