Chicago, IL – November 24, 2021 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks and etfs recently featured in the blog include: iShares Cohen & Steers REIT ETF ICF, Extra Space Storage Inc. EXR, Life Storage, Inc. LSI and National Storage Affiliates Trust NSA.
Here are highlights from Tuesday’s Analyst Blog:
Put Your Cash to Work in These 3 High-Performing REITs
While there has been a large focus on growth stocks this year, real estate investment trusts (REITs) continue to be a great way to balance your portfolio while gaining exposure to the real estate sector. Adding these income-producing investments can result in significant advantages over traditional real estate investing including increased liquidity, greater diversification, tax benefits and potentially higher returns with lower risk.
Real estate investment trusts either own or manage income-producing real estate, normally through directly investing in properties or the mortgages on those properties. The IRS mandates that REITs must pay out 90% of their taxable income to shareholders. This typically translates into much higher dividends than your average S&P 500 stock. One of the best ways to increase returns when investing in REITs is to compound the dividends received. Investors may also choose to utilize a Dividend Reinvestment Plan (DRIP), which automatically reinvests the dividends received into additional shares.
Investors have the option to buy REITs directly, or may choose to further diversify by investing in REIT ETFs or mutual funds. The iShares Cohen & Steers REIT ETF boasts a Zacks ETF #1 ranking (Strong Buy) and has outperformed the broader market this year with a nearly 32% YTD return.
REITs not only offer above-average yields, but also the potential for future price appreciation. With interest rates historically low for many years, investors have turned to vehicles like REITs when searching for ways to increase yield. But given the recent chatter surrounding future interest rate increases, a potential issue for REIT investors is their sensitivity to interest rates. Let’s take a look from a historical perspective to see what we can learn regarding REIT performance during periods of interest rate increases.
While REIT prices may react in the short-term to changes in the outlook for interest rates, over longer periods there is typically a positive correlation between rising rates and REIT returns. A stronger economic backdrop normally leads to higher occupancy rates, increased NOI (net operating income), and expanding property values. All of these components lead to higher dividend payments for REIT investors.
Now that we’ve established that REITs can outperform even in rising rate environments, let’s take a look at three REITs with a healthy outlook that are outperforming the broader market.
Extra Space Storage
EXR is the largest self-storage management company in the United States. Headquartered in Salt Lake City, the company is a fully integrated, self-administered REIT which owns and operates self-storage properties. These properties are comprised of many units and millions of square feet of rentable storage space.
Maintaining a Zacks #2 Buy ranking, we can see below that EXR has a strong history of EPS surprises. It most recently reported earnings in October for the prior quarter of $1.85, representing an 8.2% surprise over consensus.
For the year, the current Zacks Consensus Estimate stands at EPS of $6.67, reflecting a 26.3% increase over the prior year. Looking out at next year, analysts have shifted their 2022 earnings estimates upward by 3.2% in the past 30 days.
What the Zacks Model Unveils
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to find companies that have recently witnessed positive earnings estimate revision activity. This technique has proven quite useful for finding earnings surprises – in fact, when combining a Zacks #3 ranking or better and a positive earnings ESP, stocks have produced a positive surprise 70% of the time.
The ESP for Extra Space Storage currently stands at 4.94%. EXR is next scheduled to report earnings on February 28th, 2022.
Life Storage
Life Storage is a self-managed REIT that acquires and manages self-storage properties. The company is headquartered in Buffalo, New York and its brand names consist of Life Storage and Uncle Bob’s Self Storage.
LSI presently has a Zacks #2 ranking (Buy) and a solid history of earnings surprises, beating or matching estimates in each of the last ten quarters. The company most recently reported earnings earlier this month, with EPS of $1.37 which translated to a greater than 7% surprise over consensus. The current Zacks Consensus Estimate for full-year earnings stands at $4.91, which would represent 23.7% growth over last year’s EPS of $3.97.
The company’s current ESP sits at 3.58%. LSI is next scheduled to report quarterly earnings on February 28th, 2022.
National Storage Affiliates Trust
Sporting a Zacks #1 (Strong Buy) ranking, NSA is based in Houston and concentrates on the ownership, operation and acquisition of self-storage properties. Similar to its counterparts, you can see that the company has a robust history of EPS surprises, delivering an average surprise of nearly 6.4% over the past four quarters.
The current full-year Zacks Consensus Estimate for EPS stands at $2.18, which would represent 27.5% year-over-year growth. Five different analysts have upped their earnings estimates for the year over the past 60 days. The company’s ESP is currently 3.38%. NSA is also scheduled to report earnings on February 28th, 2022.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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