Duke Realty (DRE) To Post Q2 Earnings: What's In Store?

Duke Realty Corp. (NYSE:DRE) is slated to release second-quarter 2017 earnings on Jul 26, after the market closes. Encouragingly, the same day, prior to the open of trading, this Indianapolis, IN-based industrial REIT is set to join the S&P 500 index.

Last quarter, Duke Realty delivered a positive surprise of 10.34%. Results were backed by growth in revenues. Also, in-service occupancy reached a record level of 97.7% in the quarter.

Additionally, over the trailing four quarters, the company exceeded the Zacks Consensus Estimate in three occasions and met in the other, with an average beat of around 4.25%. The graph below depicts this surprise history:

Duke Realty Corporation Price and EPS Surprise

Duke Realty Corporation Price and EPS Surprise | Duke Realty Corporation Quote

Duke Realty’s shares have climbed 4.5% year to date, outperforming the industry’s gain of 3.2%.



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

Factors to Consider

In recent years, Duke Realty has made concerted efforts to enhance its industrial portfolio. This augurs well because the industrial real estate market has been experiencing solid growth, attributed to supply chain modernization and expansion, which is leading to higher demand from e-commerce customers, third party logistic providers and traditional warehousing customers.

While there is a rising demand for modern logistics facilities with the vacancy rates tightening, new supply is still manageable which has been pushing up rents significantly in many of the markets.

Amid this, Duke Realty is well poised to benefit from its capacity to offer modern distribution facilities in strategic in-fill locations. In fact, with over 135 million square feet of high-quality bulk distribution real estate in 21 major U.S. logistics markets nationwide, the company is anticipated to witness revenue growth from this asset category in the second quarter and witness high level of occupancy.

However, Duke Realty is enhancing its portfolio mix through consistent divestitures. Notably, the company completed significant disposition of office property in 2016, thereby exiting from the suburban office sector. Moreover, in May, the company made efforts to shed its medical office business and portfolio for $2.8 billion. While such efforts are a strategic fit for the long term, the near-term dilutive effect cannot be bypassed. In fact, such short-term impact tends to drag the company’s quarterly results and weigh on its profitability.

Also, over the past 30 days, the Zacks Consensus Estimate of funds from operations (“FFO”) per share for the to-be-reported quarter moved down 3.2% to 30 cents, reflecting analysts’ bearish sentiments on the stock.

Earnings Whispers

Our proven model does not conclusively show that Duke Realty will likely beat estimates this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. However, that is not the case here as you will see below.

Zacks ESP: The Earnings ESP for Duke Realty is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 30 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Duke Realty has a Zacks Rank #4 (Sell).

This combination of a 0.00% ESP and a Sell rank makes it difficult to predict a beat this season.

In fact, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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:

Liberty Property Trust (NYSE:LPT) , slated to release second-quarter results on Jul 25, has an Earnings ESP of +1.61% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CyrusOne Inc. (NASDAQ:CONE) , scheduled to release earnings on Aug 2, has a Zacks Rank #2 and an Earnings ESP of +2.70%.

Piedmont Office Realty Trust, Inc. (NYSE:PDM) , slated to release earnings on Aug 2, has an Earnings ESP of +2.27% and a Zacks Rank #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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