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Key Factors to Impact Prologis' (PLD) Earnings This Season

Zacks Equity Research

Prologis, Inc. PLD is slated to report second-quarter 2019 earnings on Jul 16, before the opening bell. The company’s quarterly performance is likely to reflect growth in both revenues and funds from operations (FFO) per share.

In the last reported quarter, this industrial real estate investment trust (REIT) delivered a positive surprise of 1.39% in terms of FFO per share. The company witnessed top-line growth in the quarter, while period-end occupancy was high.

Over the preceding four quarters, Prologis surpassed the FFO per share estimates in three occasions and met in the other, the average positive surprise being 1.02%. This is depicted in the graph below:

Prologis, Inc. Price and EPS Surprise

Prologis, Inc. Price and EPS Surprise

Prologis, Inc. price-eps-surprise | Prologis, Inc. Quote

Let’s see how things are shaping up for this announcement.

Factors at Play

In a rising e-commerce market, the industrial real estate asset category has grabbed headlines and continues to play a pivotal role, transforming the way how consumers shop and receive their goods. State-of-the-art technologies are being employed by Industrial REITs at their logistics centers for achieving efficiency in trans-shipment and delivery process.

Services like same-day delivery are gaining traction and last-mile properties in high-income urban areas are witnessing solid pricing, occupancy and growth in rentals. With scarcity of developable land near consumers, multi-story logistics facilities are gaining traction.

Moreover, with e-commerce expanding to sectors like grocery and furniture, there is additional demand for distribution space. Vacancy rates are hovering at cyclical lows in many markets, while rents are climbing up.

Amid this favorable environment, Prologis is well poised to benefit from its capacity to offer modern distribution facilities at strategic in-fill locations. The company is actively banking on its growth opportunities through opportunistic developments.

In fact, Prologis’ large number of build-to-suit development projects highlights the advantageous location of its land bank, as well as demand from multi-site customers, many of whom are focused on e-commerce. These sites are positioned in urban markets suited for serving as the last-mile warehouses.

This apart, Prologis has decent balance-sheet strength to back its growth endeavors. Being a market leader, the company has the ability to raise capital at favorable rates.

In the to-be-reported quarter, the company is expected to have enjoyed high occupancy of its properties and healthy rent levels. The Zacks Consensus Estimate for the second-quarter revenues is currently pegged at nearly $705.5 million — indicating 29.5% increase from the prior-year quarter’s reported tally — which is encouraging.

The Zacks Consensus Estimate of FFO per share for the quarter under review moved marginally south, in the last 30 days, to 76 cents. Nevertheless, the figure denotes a projected year-over-year increase of around 7%.

Notably, recovery in the industrial market has continued for long and a whole lot of new buildings are becoming available in the market, leading to higher supply and lesser scope for rent and occupancy growth. Additionally, any protectionist trade policies will have an adverse impact on economic growth, as well as the company’s business over the long term.

Shares of Prologis have appreciated 37.9% in the year so far compared with 20.4% growth registered by its industry.

Here is what our quantitative model predicts:

Prologis does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Prologis is -0.52%.

Zacks Rank: Prologs carries a Zacks Rank of 3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of a positive surprise.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Ventas Inc. VTR, slated to release second-quarter earnings on Jul 26, has an Earnings ESP of +0.54% and carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alexandria Real Estate Equities, Inc. ARE, scheduled to release April-June quarter results on Jul 29, has an Earnings ESP of +0.15% and currently holds a Zacks Rank #2.

SL Green Realty Corporation SLG, set to report quarterly numbers on Jul 17, has an Earnings ESP of +0.96% and carries a Zacks Rank of 3, currently.

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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