The Zacks Analyst Blog Highlights: Public Storage, PS Business Parks, AvalonBay Communities, Host Hotels & Resorts and Time Warner Cable

Feb 21, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Feb. 21, 2013 /PRNewswire/ -- announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Public Storage (NYSE: PSA), PS Business Parks Inc. (NYSE: PSB), AvalonBay Communities Inc. (NYSE: AVB), Host Hotels & Resorts Inc. (NYSE: HST) and Time Warner Cable Inc. (NYSE: TWC).


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Here are highlights from Wednesday's Analyst Blog:

Will Public Storage Beat in 4Q?


Public Storage (NYSE: PSA) is anticipated to beat expectations while reporting its fourth-quarter 2012 results on Thursday, Feb 21 with an earnings call scheduled the next day.

Why a Likely Positive Surprise?

Our proven model shows that Public Storage is likely to beat earnings since it has an appropriate combination of the following 2 key ingredients:

Positive Zacks ESP: Earnings ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.57%. This indicates a likely positive earnings surprise.

Zacks Rank #3 (Hold): This increases the predictive power of its ESP. The combination of its Zacks Rank and Earnings ESP assures us of a positive earnings surprise in the to-be-reported quarter.

Stocks with Zacks Ranks of #1, #2 and #3 have significantly higher chances of beating the earnings estimates. The Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement.

Key Drivers

Public Storage is well poised to maintain its growth curve backed by its robust presence in all the major markets in the U.S. It is the leading owner and operator of storage facilities in the U.S. and has significantly increased the scale and scope of its operations through the acquisition of Shurgard Storage Centers that has a considerable presence in the European markets.

It also owns a 41% common equity interest in PS Business Parks Inc. (NYSE: PSB), which owns and operates commercial space, primarily flex, multi-tenant office and industrial space. In addition, the storage facilities of the company have a high visibility and are usually located in heavily populated areas that enhance the local awareness of the brand.

This provides a significant upside potential for the company and we expect the size and scope of its operations to enable it to achieve economies of scale, thereby generating high operating margins in the fourth quarter.

Moreover, Public Storage has one of the strongest balance sheets in the sector and has been making concerted efforts towards increasing shareholders wealth. Accordingly, it hiked its dividend by nearly 16% in the first half of 2012. The current dividend rate affirms an annual yield of 2.91%.

We further expect a dividend hike in the first half of 2013 as we anticipate a better-than-expected performance at this REIT. Notably, a number of other REITs including AvalonBay Communities Inc. (NYSE: AVB) have increased their dividend recently.

Other Stock to Consider

Here is another REIT that you may want to consider, as our model shows it has the right combination of elements to post an earnings beat this season:

Host Hotels & Resorts Inc. (NYSE: HST) has an Earnings ESP of +5.41% and carries a Zacks Rank #3. The company is scheduled to report its fourth-quarter 2012 earnings on Feb 21, before the opening bell.



Time Warner Cable to Underperform


We are downgrading our recommendation on Time Warner Cable Inc. (NYSE: TWC) to Underperform backed by the company's weak financial guidance for 2013. The company is losing video subscribers without any interruption since 2009. We do not know when this trend will ultimately reverse.


Why the Downgrade?

Growing competitive threats from telecom, satellite TV and online video streaming operators along with soaring programming costs are taking heavy toll on Time Warner Cable's finances. The company estimated that its programming costs will increase by 10% in 2013.


Further, the total amount of high-margin political advertisement will be significantly below the prior-year level. As a result, the company's operating margin will decline 0.5-1% in 2013.


Management guided that its fiscal 2013 adjusted earnings per share will grow by 10-14%, which is way below the initial Zacks Consensus Estimate of 20% growth. Time Warner Cable currently has a Zacks Rank #5 (Strong Sell).


Other Negatives

The multi-channel video market in the U.S. is almost saturated. Roughly 87% of the total 114 million TV household in the U.S. are at present multi-channel TV subscribers. It is not easy to gain customers from competitors since each and every pay-TV operators are offering innovative packages.


For example, the online videos provide an extremely cheaper source of TV programming unless the customer is very eager to see real-time programs like sports events. This business model is gaining momentum, especially when the economic headwind is still persisting.


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