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The industrial real estate asset category has grabbed attention due to elevated demand, recovering economy and job market, strengthening e-commerce market and a healthy manufacturing environment. Given Prologis Inc.’s PLD capacity, the company remains well positioned to capitalize on these growth opportunities.
In fact, the company provides industrial distribution warehouse space in some of the busiest distribution markets across the globe. Its properties are typically located in large, supply-constrained infill markets with airports, seaports and ground transportation facilities nearby, which facilitates rapid distribution of customers’ products.
At the end of fourth-quarter 2017, occupancy level in the company’s owned and managed portfolio was 97.2%, expanding 10 basis points (bps) year over year. This record level was driven by the U.S. portfolio which experienced 98.0% of occupancy. Moreover, the company’s share of net effective rent change was 19.0% in the quarter compared with 16.0% recorded in the prior year. The figure was led by the U.S. portfolio, which recorded impressive growth of 29.8%.
Prologis is focused on bolstering its liquidity and strengthening the balance sheet. For full-year 2017, the company reported a 340-basis-point contraction in leverage to 23.7%, on a market capitalization basis, and debt-to-adjusted EBITDA improved around 0.2x to 4.6x. The company remains well poised to capitalize on growth opportunities backed by its balance-sheet strength and prudent financial management.
In addition, solid dividend payouts are arguably the biggest enticement for REIT shareholders and Prologis remains committed to that. Shareholders of the company rejoiced this February after the board approved a 9% hike in its annualized dividend rate to $1.92 from the $1.76 paid earlier. This dividend rate is expected to be sustainable on the back of the company’s financial position and lower debt-to-equity ratio and payout ratio compared to that of the industry.
Moreover, this Zacks Rank #3 (Hold) stock has outperformed its industry in the last year. The stock has gained 17% against the industry’s descend of 5.3% during this time frame.
However, recovery in the industrial market has persisted for a long time and chances of any significant drop in availability rates are less. In fact, a whole lot of new buildings are slated to be completed and made available in the market in the near term, leading to higher supply and lesser scope for rent and occupancy growth.
Additionally, hike in interest rate can pose a challenge for the company. Rising rates imply higher borrowing cost for the company, which might affect its ability to purchase or develop real estate and lower dividend payouts as well. Also, the dividend payout might become less attractive than the yields on fixed income and money market accounts.
Stocks Worth a Look
A few better-ranked stocks from the same industry are Arbor Realty Trust ABR, Extra Space Storage Inc. EXR and Sotherly Hotels Inc. SOHO, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Arbor Realty Trust’s Zacks Consensus Estimate for 2018 FFO per share has been revised 2.3% upward to 90 cents over the past two months. Its share price has risen 3.6% in six months’ time.
Extra Space Storage’s FFO per share estimates for the current year moved up 2% to $4.59 in a month’s time. Its shares have gained 7.8% over the past six months.
Sotherly Hotels’ FFO per share estimates for 2018 have been revised approximately 1.9% upward to $1.05 over the past month. The stock has climbed 16.7% during the past six months.
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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