It's well-established on Wall Street that companies that beat the analysts' estimates often outperform other stocks over the next few weeks. And when the "beat" is on both earnings and revenue, it's even more likely to propel a stock higher.
But sometimes Wall Street will "buy on the rumor, sell on the news," and a stock may drop for a day or two after the earnings report. Analysts' opinions often carry more weight than the earnings performance of a company.
Take a look at three real estate investment trusts (REITs) that just beat the analysts' estimates on both earnings and revenue and have made recent significant moves higher.
Arbor Realty Trust Inc. ABR is a Long Island-based mortgage REIT (mREIT) that initiates bridge and mezzanine loans for commercial and residential properties. Many of its loans originate through Fannie Mae and Freddie Mac programs.
Arbor Realty Trust generates profits by the spread between the cost of financing a loan and the interest earned from that loan. Many of Arbor Realty Trust's commercial loans are first mortgage liens that are short term with higher interest rates.
After the closing bell on July 28, Arbor Realty Trust reported its second-quarter earnings. Because Arbor Realty Trust is a mortgage REIT, it reports earnings per share (EPS) rather than funds from operations (FFO).
EPS of $0.57 beat the estimates of $0.44 by 29.55% and was a 9.62% increase over EPS of $0.52 per share in the second quarter of 2022. Revenue of $108.54 million beat the estimates for $99.11 million and was a 15.15% increase over revenue of $94.28 million in the second quarter of 2022.
In addition, last week Arbor Realty raised its dividend from $0.42 to $0.43 per share. Despite all the positive news, on July 31, Piper Sandler Cos. analyst Crispin Love downgraded Arbor Realty Trust two levels, from Overweight to Underweight, and announced a $16 price target.
The analyst was concerned that Arbor Realty Trust reported an increase in nonperforming loans this past quarter.
"This is coming off an extremely low base, but we believe the credit environment over the next several quarters is likely to worsen prior to getting better once interest rates begin to move lower," said Love, who said he believes that the stock, which had risen over 34% year to date before the earnings report, is now overextended.
On July 24, Arbor Realty Trust also received a downgrade from J.P. Morgan analyst Richard Shane from Neutral to Underweight. But Shane raised his price target from $11.50 to $13.50.
On Monday, following Piper Sandler's downgrade, Arbor Realty Trust sold off over 4%.
Franklin BSP Realty Trust FBRT is a New York City-based mortgage REIT that acquires and manages U.S. commercial real estate debt secured by the properties that hold the debt. It was formerly known as Benefit Street Partners Realty Trust Inc. and was incorporated as Franklin BSP Realty Trust in 2012.
On July 31, after the closing bell, Franklin BSP Realty Trust reported its second-quarter operating results. EPS of $0.66 beat the estimates of $0.50 by 32% and was 127.59.% increase over EPS of $0.29 per share in the second quarter of 2022. Revenue of $84.03 million beat the estimates for $67.19 million and was a 25.06% increase over revenue of $39.72 million in the second quarter of 2022.
Franklin BSP Realty Trust opened about 2% higher the morning following the earnings report. In May, Franklin BSP Realty Trust also reported first-quarter earnings and revenue that beat the estimates, and the stock has risen 21% since then.
Seven Hills Realty Trust SEVN is a Newton, Massachusetts-based mortgage REIT founded in 2008 that originates and invests in first mortgages secured by middle-market and transitional commercial real estate.
On July 31, after the closing bell, Seven Hills Realty Trust reported its second-quarter operating results. EPS of $0.37 beat the estimates of $0.34 by 8.82% and was a 54.17% increase over EPS of $0.24 per share in the second quarter of 2022. Revenue of $9.09 million beat the estimates of $8.76 million and was a 21.23% increase over revenue of $7.5 million in the second quarter of 2022.
Like Franklin BSP Realty, Seven Hills Realty Trust beat the estimates on EPS and revenue in its first-quarter operating results in April. The stock dropped after that report from $10.20 to $8.75 but has since rallied back to its previous $10.20 level.
On July 18, Seven Hills Realty Trust announced it closed a $26.5 million bridge loan to purchase a 320,000-square-foot industrial warehouse property in Fountain Inn, South Carolina. The two-year initial term loan has a possible one-year extension option.
Seven Hills Realty Trust was trading about 1% higher in the morning following the earnings report.
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