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Seeking Alpha's Quant Rating system gives the S&P 500 real estate stocks an average health score of 3.19 on a scale of 5 ahead of the Q3 earnings season.
Quant awards grades based on quantitative measures, like valuation, earnings growth and recent stock performance. The highest possible score for any individual company is a 5.
Real estate stocks accounted for the second-biggest growth among the S&P 500 sectors in Q3. XLRE gained 17.43% in Q3, outpacing the broader S&P 500 Index's 5.25% rise.
The sector's performance was marked by the Federal Open Market Committee trimming its benchmark interest rate by 50 basis points to 4.75%-5.0% in September. The real estate commission rules that went into effect in August had an impact.
Quant Ratings
Among the individual sector companies, real estate services provider CBRE Group (CBRE) (Strong Buy with a score of 4.67), specialized REIT VICI Properties (VICI) (Strong Buy with a score of 4.64) and retail REIT Regency Centers (REG) (Strong Buy with a score of 4.61) are the top picks.
Telecom tower REITs SBA Communications (SBAC) (Strong Sell with a score of 1.34) and Crown Castle (CCI) (Sell with a score of 2.00) and timber REIT Weyerhaeuser (WY) (Strong Sell with a score of 1.47) rank the least.
With the highest index weight of 10.00%, industrial REIT Prologis (PLD) gets a Hold rating and a score of 2.99. Telecom tower REIT American Tower (AMT), holding the second-highest index weight of 9.48%, scores 3.32 with a Hold rating.
The Real Estate Select Sector SPDR Fund ETF (NYSEARCA:XLRE) holds a Quant score of 2.89 with a Hold rating, the eighth-highest place among the 11 sector-based ETFs.
Quant grades the fund as B for Momentum, A for Expenses, C- for Dividends, D+ for Risk and A+ for Liquidity.
Out of the 31 S&P 500 real estate stocks, four are rated as Strong Buys, four as Buys, 20 as Neutrals, one as Sell and 2 as Strong Sells.
Analyst Say
The real estate sector is expected to report an earnings growth of 5% in Q3, while the estimated growth rate for the S&P 500 index is 4.2%, FactSet data said.
The quarterly sector revenue is estimated to grow by 4.7%, the same level as SP500, the data showed.
For Q3, analysts have cut their bottom-up EPS estimates for the sector by 2.1%.
RBC Capital Markets maintains an Underweight rating on REITs.
