PPS Post Properties, Inc. (delisted)

The apartment REIT delivered a 29% positive earnings surprise for the second quarter on higher occupancy rates and average monthly rents. It was Post's 8th consecutive positive earnings surprise.

Management revised its guidance higher for 2011 after the strong quarter, prompting analysts to raise their estimates significantly higher. It is a Zacks #1 Rank (Strong Buy) stock.

In addition to strong earnings growth potential, Post pays a dividend that yields 2.4%.

Second Quarter Results

Post reported better than expected results for the second quarter on August 1. Funds from operation (FFO) per share came in at 54 cents, crushing the Zacks Consensus Estimate by 12 cents. It was a whopping 46% increase over the same quarter in 2010.

Total revenues increased 5% due to both higher occupancy rates and rents. Same-store occupancy rates rose from 95.1% in the second quarter of 2010 to 95.5% while the average monthly rental rate increased a solid 3.5%.

Meanwhile, net operating income rose 8% as the company leveraged its fixed expenses.

Outlook

Management raised its guidance for 2011 following strong second quarter results. Post now expects FFO per share between $1.75 and $1.84 on 4.5%-5.0% revenue growth. This is up from previous guidance of $1.54-$1.68 on revenue growth of 3.9%-4.3%.

This prompted analysts to revise their estimates significantly higher for both 2011 and 2012, sending the stock to a Zacks #1 Rank (Strong Buy) stock.

The Zacks Consensus Estimate for 2011 is within guidance at $1.82 and represents 50% FFO growth over 2010. The 2012 consensus estimate is currently $1.96, corresponding with 8% growth.

Post will release its third quarter earnings after the market closes on Monday, October 31. The current Zacks Consensus Estimate is $0.44.

Income

Post Properties is a real estate investment trust (REIT) and must pay out at least 90% of its earnings to shareholders in the form of dividends to avoid paying taxes on the money.

Post slashed its dividend during the Great Recession but recently raised its by 10%. It currently yields 2.4%.

Valuation

The valuation picture looks reasonable for Post. Shares trade at 18.9x 12-month forward earnings, essentially in-line with its 10-year median.

Its price to book ratio of 1.9 is a slight discount to the industry average of 2.1.

The Bottom Line

As more and more Americans ditch home ownership in favor of renting, apartment companies like Post Properties should continue to benefit for years to come. With rising earnings estimates, strong growth projections, a 2.4% dividend yield and reasonable valuation, Post offers plenty to like.

Read the July 21 article here.

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Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.

 
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