General Growth Properties Just Raised the Bar

Offering earnings guidance above analyst expectations is obviously a bullish sign, as over time earnings growth follows sales growth. And when a company predicts greater sales or profits, we expect its stock price to soon follow.

Mall operator General Growth Properties (GGP) recently said that fourth-quarter funds from operations were expected to be $0.28 to $0.30 per share while full-year FFO was expected to be in the range of $0.96 to $0.98 per share compared to the consensus estimate of $0.95 per share. The company is still in the process of making a turnaround since emerging from bankruptcy in 2010, and while activist hedge fund operator Bill Ackman may want to see it sold to rival Simon Property Group (SPG -0.84%), management says it can do a better job for shareholders as a stand-alone company.

Now don't go blindly buying on this bullish sentiment -- you still need to do some research. Turnarounds, after all, don't always go smoothly, so use the announcement as a jumping-off point for additional research.

General Growth Properties snapshot

Source: Finviz.com. TTM = trailing 12 months.

The mall-ing of America
The mall is no longer the ghost town it once was. Many retailers like Gap (GPS -3.75%) are reporting stronger third-quarter results, and as we're now fully into the Christmas shopping season, they're hoping for even better fourth-quarter returns.

Gap not only beat analyst expectations but raised its full-year guidance too, as did Abercrombie & Fitch  (ANF -3.77%), which surprised Wall Street with its exceptional performance. Anchor store operator Macy's (M -1.24%) also beat estimates and Kohl's (KSS -3.25%) said it saw improved sales in its third-quarter too. Black Friday in general was seen as a success, with retailers reporting a 13% increase in sales over the Thanksgiving weekend, and many chose to extend the promotions to so-called Cyber Monday in hopes of maintaining momentum.

Avoiding the crowds
Yet we can still see some of the strains showing from the lackluster economy as both department stores offered up fourth-quarter guidance below Wall Street expectations. J.C. Penney (JCPN.Q) was a disappointment all around, and its own stumbling turnaround efforts should serve as a cautionary note to GGP.

Indeed, the results of the holiday shopping orgy ought to give investors in the mall operator pause too. According to comScore, Black Friday actually surpassed $1 billion in online sales for the first time ever, rising 26% from a year ago. With 57.3 million Americans visiting online stores on the day after Thanksgiving, a 18% increase over the same day in 2011, the estimated 1.8% drop in retail sales at bricks-and-mortar stores is a warning shot about how malls may be perceived in the future. Why battle the crowds when you can get great deals online?

Strength in numbers
Although management thinks it's best able to handle the continued growth of General Growth Properties, and their recent track record is impressive, Ackman's cajoling of Brookfield Asset Management (BN 0.35%) to sell its 40% stake in GGP to Simon might make some sense.

Simon's also had an impressive third quarter, with comps up 9.3% to $562 per square foot. Average rent per square foot also rose 3.8% during the quarter to $40.33. It's also notable that Taubman Centers outperformed GGP too.

Going flat
At current valuations, General Growth Properties seems to carry a premium, particularly compared to its more financially sound peers, so I'm not ready to think it can continue running ahead of the broad market indexes. I wouldn't bet against GGP either at this point, but let me know in the comments box below if you think the mall operator can still attract a crowd.