Today's Roof Leaker Stock Is Equity Residential (EQR)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Equity Residential ( EQR) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Equity Residential as such a stock due to the following factors:

  • EQR has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $98.2 million.
  • EQR has traded 193,114 shares today.
  • EQR is trading at 2.77 times the normal volume for the stock at this time of day.
  • EQR crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on EQR:

Equity Residential, a real estate investment trust (REIT), engages in the acquisition, development, and management of multifamily properties in the United States. The stock currently has a dividend yield of 2.7%. EQR has a PE ratio of 38. Currently there are 4 analysts that rate Equity Residential a buy, no analysts rate it a sell, and 13 rate it a hold.

The average volume for Equity Residential has been 1.7 million shares per day over the past 30 days. Equity has a market cap of $27.3 billion and is part of the financial sector and real estate industry. The stock has a beta of -0.11 and a short float of 1.3% with 3.55 days to cover. Shares are up 2.7% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Equity Residential as a buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, revenue growth, good cash flow from operations and impressive record of earnings per share growth. We feel its strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 130.6% when compared to the same quarter one year prior, rising from $79.14 million to $182.52 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 8.5%. Since the same quarter one year prior, revenues slightly increased by 5.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • Net operating cash flow has slightly increased to $347.90 million or 3.26% when compared to the same quarter last year. In addition, EQUITY RESIDENTIAL has also modestly surpassed the industry average cash flow growth rate of 0.73%.
  • EQUITY RESIDENTIAL reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, EQUITY RESIDENTIAL turned its bottom line around by earning $1.72 versus -$0.49 in the prior year. For the next year, the market is expecting a contraction of 3.5% in earnings ($1.66 versus $1.72).

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