Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
RBC Capital Markets analyst Pammi Bir provided an earnings preview in the beaten down REIT sector,
“Our view: As Q3 earnings kicks off this week, we expect a steady quarter of FFOPU [funds from operations per unit] growth. That said, downside risks to earnings forecasts and NAVs remain as rates continue to rise. Questions around distribution sustainability have also risen in frequency. In short, little has gone unscathed from the wrath of a higher for longer rate backdrop and elevated macro uncertainty, including our preferred picks … We expect growth leadership from seniors and industrial, aided by strength in fundamentals. Our Q3/23E reflect YoY FFOPU [year-over-year funds from operations per unit] growth of 2 per cent, in-line with Q2/23. The range is wide, however, with leadership from seniors housing (up 11 per cent year-over-year) and industrial (up 7 per cent), followed by multi-family (up 5 per cent), self storage (up 5 per cent), retail (up 3 per cent), diversifieds (down 5 per cent) and office (down 6 per cent) … We believe the ability for select names to maintain current distribution levels is ‘below average’, including [Allied Properties REIT, Artis REIT, Chartwell Retirement Residences, Dream Office REIT, European Residential REIT, Extendicare Inc., American Hotel Income Properties REIT, Melcor REIT, Northwest Healthcare Properties REIT, Nexus REIT, Slate Grocery REIT and Smartcentres REIT]”
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National bank economists Mattieu Arseneau and Alexandra Ducharme estimate that over 40 per cent of the negative effects of rate hikes have yet to be felt,
“August’s retail sales data released this morning continued to show weakening consumers, reflecting the negative effects of rising prices and the interest rate shock on household purchasing power… consumption per capita showed its biggest quarterly decline since the first pandemic-related lockdown… the Conference Board index is at levels seen only in the last two recessions. Given the long lag between interest rate hikes and their full impact on consumption, there is every reason to believe that weakness will continue for some time. Indeed, the Bank of Canada estimates that the impact of a rate hike on consumption is only entirely felt after 8 quarters, with the impact being essentially linear over the two years … Using these estimates, we calculate that 42 per cent of the impact of the huge rate hikes announced since March 2022 has yet to be felt. For this reason, it would be perilous for the Central Bank to focus on the resilience of core inflation in its rate decision next week, as this indicator reacts with a lag to the economic situation which looks set to be moribund over the next 12 months. We expect the Bank to hold its policy rate steady next Wednesday”
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Morgan Stanley chief U.S. equity strategist Michael Wilson remains concerned about the ongoing earnings season,
“In last week’s note, we made the case that the odds of a 4Q rally have been reduced. Our work on narrowing breadth, cautious factor leadership, falling EPS revisions and fading consumer confidence tells a different story than the consensus call for a rally into year end that’s more centered on sentiment and seasonal tendencies … We remain focused on earnings revisions breadth which tends to have leading properties relative to dollar EPS estimates. On that score, revisions breadth for the S&P 500 decelerated further into negative territory last week (meaning more downward than upward revisions) led by Professional Services, Autos, Real Estate Management and Consumer Services … '
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Diversion: “Apple Reportedly Cancels Jon Stewart’s Show Over His AI and China Talking Points” – Gizmodo
Scott Barlow