Should You Buy, Hold or Sell Realty Income Stock Ahead of Q2 Earnings?

Realty Income Corporation O, a leader in the net lease sector, is slated to release second-quarter 2025 results on Aug. 6, after market close. The Zacks Consensus Estimate for the to-be-reported quarter’s adjusted funds from operations (AFFO) and revenues is pegged at $1.06 per share and $1.40 billion, respectively.

The Zacks Consensus Estimate for second-quarter 2025 AFFO per share has remained unrevised at $1.06 over the past two months. It suggests no growth year over year. The Zacks Consensus Estimate for quarterly revenues implies a notable year-over-year increase of 4.2%.

For the current year, the Zacks Consensus Estimate for Realty Income’s revenues is pegged at $5.61 billion, implying a rise of 6.5% year over year. The consensus mark for 2025 AFFO per share stands at $4.27, calling for an expansion of around 1.91% on a year-over-year basis. 

Over the trailing four quarters, the company’s AFFO per share surpassed the Zacks Consensus Estimate on one occasion, met twice and missed in the remaining period. This is depicted in the graph below:

Realty Income Corporation Price and EPS Surprise

Realty Income Corporation price-eps-surprise | Realty Income Corporation Quote

Here Is What Our Quantitative Model Predicts for O:

Our proven model predicts a surprise in terms of AFFO per share for Realty Income this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an AFFO beat, which is the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Realty Income currently carries a Zacks Rank of 3 and has an Earnings ESP of +0.30%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Resilient Business Model to Aid O's Q2 Results

Realty Income is likely to report steady operational results for the second quarter, backed by its diversified, high-quality real estate portfolio. A major portion of its rental income comes from tenants with non-discretionary, low price point and service-oriented focus, ensuring dependable cash flow. The company’s disciplined acquisition approach and focus on prime properties continue to support strong portfolio performance. 

As of March 31, 2025, Realty Income reported an impressive 98.5% occupancy rate, with expectations to remain above 98% for the full year. This consistently high occupancy, underpinned by prudent underwriting standards, is anticipated to have sustained earnings stability in the quarter. The company’s focus on resilient tenant sectors and strategic asset management is likely to have played a key role in its performance.

Realty Income’s strategic expansion beyond retail into sectors like industrial, gaming and data centers has strengthened its long-term outlook. Key investments, including stakes in Encore Boston Harbor and Bellagio Las Vegas, and a partnership with Digital Realty DLR, highlight its forward-focused approach. Its collaboration with Digital Realty also supports entry into the growing digital infrastructure space. Coupled with its European expansion and large addressable market, these efforts are likely to have continued in the second quarter, supporting revenue growth. O targets $4 billion in investments for 2025.

Realty Income is likely to have sustained a solid financial position in the second quarter, supporting its ongoing growth efforts. As of March 31, 2025, the company held strong investment-grade credit ratings — A3 from Moody’s and A- from S&P. Its capital structure is expected to have remained healthy, with a manageable net debt to annualized pro-forma adjusted EBITDAre ratio and a well-laddered debt maturity schedule, reducing refinancing risks and enhancing financial flexibility.

The Zacks Consensus Estimate for quarterly revenues is pegged at $1.40 billion, which suggests a 4.21% increase from the year-ago quarter’s reported figure. The consensus mark for rental revenues (excluding reimbursable) is pegged at $1.26 billion, up from $1.22 billion recorded in the prior quarter and $1.20 billion in the year-ago quarter. 

Despite its strengths, Realty Income faces certain challenges. In 2024, its bad debt provision increased to 75 basis points, primarily linked to underperforming tenants brought in through mergers and acquisitions. The presence of financially weaker tenants introduces near-term uncertainty and may pressure cash flow reliability. Also, elevated interest expenses may have posed a challenge. O has a substantial debt burden, and its net debt as of March 31, 2025, was approximately $27.64 billion. Its interest expenses were up 11.5% year over year to $268.4 million in the first quarter of 2025, and this trend is expected to have continued in the second quarter.

O's Price Performance & Valuation

Shares of Realty Income have rallied 7.6% so far in the year, closing at $57.45 yesterday on the NYSE. The Zacks REIT and Equity Trust - Retail industry has declined 10.0%, while the S&P 500 composite has increased 5.7% over the same time frame.

Realty Income stock is trading at a forward 12-month price-to-FFO of 13.19X, below the retail REIT industry average of 14.58X but slightly ahead of its one-year median of 13.17X. Although Realty Income stock is currently trading at a discount compared to its industry peers like Agree Realty Corporation ADC, this valuation disparity might not be as favorable as it seems. Agree Realty is trading at a forward 12-month price-to-FFO of 17.00X.

How to Play Realty Income Stock Ahead of Q2 Earnings?

Realty Income offers a compelling blend of income stability and long-term growth, underpinned by its diversified portfolio, essential-service tenant base and long-term net lease structure. Strategic moves into gaming and data centers, highlighted by its partnership with Digital Realty, demonstrate a forward-looking expansion strategy. Its 5.62% dividend yield and investment-grade balance sheet reinforce its appeal for income-focused investors.

However, near-term growth may be challenged by macroeconomic uncertainties and elevated interest costs. While the stock trades at a discount relative to peers like Agree Realty, waiting for improved visibility on the economic and policy fronts could be prudent. 

For existing investors, Realty Income’s dependable cash flows, strong dividend track record and defensive positioning across sectors make it a worthwhile hold. Continued monitoring of earnings and portfolio developments will be key to reassessing future upside potential.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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

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