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S&P 500 real estate stocks (NYSEARCA:XLRE), holding 2.2% weightage on the S&P 500 Index, get a neutral health score of 3.17 on a scale of 5 by Seeking Alpha's Quant Rating system ahead of the Q1 earnings season.
The Quant Rating system grades Host Hotels & Resorts (HST), VICI Properties (VICI) and Federal Realty Investment Trust (FRT) as Strong Buys, with health scores of 4.83, 4.66 and 4.56, respectively. SBA Communications (SBAC), with a score of 1.23, has been rated as Strong Sell.
HST posted mixed results last quarter, but forecasted growth in the first half of 2024. VICI, the REIT-focused on casinos and entertainment venues, posted stronger-than-expected Q4 2023 earnings and revenue, and delivered 2024 AFFO guidance above the 2023-level.
Meanwhile, FRT is expected to produce sector-leading earnings growth in 2024, a research note by Bank of America Global Research said.
Alexandria Real Estate Equities (ARE) (Quant Score: 4.38), Public Storage (PSA) (Quant Score: 4.02) and Realty Income (O) (Quant Score: 3.91) are some of the other notable real estate stocks ranked highly by the rating system. Ventas (VTR) (Quant Score: 1.67) ranks low in the list.
The average industry Quant score aligns with the rating on the general real estate sector by Citi Research analysts, who rate the sector as market weight. From the fourth quarter outperformance, the first quarter of this year has seen underperformance within the stocks, the investment firm noted.
Real estate lags other asset classes as elevated rates continue to drag on performance. The Federal Reserve has indicated that there is no rush to cut interest rates, creating uncertainty for real estate investors, according to SA author REITer's Digest.
But when it comes to the upcoming quarterly earnings, Goldman Sachs expects a 3% EPS growth in the real estate sector, the same as for the broader S&P 500 index.
"We expect Q1 earnings to show that REIT balance sheets are still solid, with modest levels of leverage and high percentages of unsecured and fixed rate debt. Sound balance sheets will continue to help REITs navigate the ongoing economic uncertainty surrounding when the Fed will cut rates," Edward Pierzak, Nareit's senior vice president of research, said.