Service Properties (SVC) Surges 15.0%: Is This an Indication of Further Gains?

Service Properties (SVC) shares soared 15% in the last trading session to close at $7.15. The move was backed by solid volume with far more shares changing hands than in a normal session. This compares to the stock's 9.5% loss over the past four weeks.

The increased investor optimism toward the stock can be attributed to TKO Hotels’ unsolicited $2-billion all-cash offer to acquire SVC’s entire hospitality portfolio. The proposed transaction is expected to provide substantial liquidity, potentially enabling SVC to reduce its debt by more than 40%.

This real estate investment trust is expected to post quarterly funds from operations (FFO) of 30 cents per share in its upcoming report, which represents a year-over-year change of -70%. Revenues are expected to be $385.15 million, down 19.6% from the year-ago quarter.

While FFO and revenue growth expectations are important in evaluating the potential strength in a stock, empirical research shows a strong correlation between trends in FFO estimate revisions and near-term stock price movements.

For Service Properties, the consensus estimate for FFO per share for the quarter has remained unchanged over the last 30 days. And a stock's price usually doesn't keep moving higher in the absence of any trend in FFO estimate revisions. So, make sure to keep an eye on SVC going forward to see if this recent jump can turn into more strength down the road.

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>

Service Properties is a member of the Zacks REIT and Equity Trust - Other industry. One other stock in the same industry, Ventas VTR, finished the last trading session 0.3% higher at $82.04. VTR has returned -9.6% over the past month.

For Ventas, the consensus estimate for FFO per share for the upcoming report has remained unchanged over the past month at 99 cents. This represents a change of +12.5% from what the company reported a year ago. Ventas currently has a Zacks Rank of #3 (Hold).

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This article originally published on Zacks Investment Research (zacks.com).

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