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Can Prologis (PLD) Maintain its Beat Streak in Q3 Earnings?

Zacks Equity Research

Prologis, Inc. PLD is slated to report third-quarter 2019 earnings on Oct 15, 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 1.3% 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 on all occasions, the average positive surprise being 1.35%. 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

The e-commerce boom has buoyed the industrial real estate asset category. In fact, e-retail continues to play a pivotal role, transforming the way how consumers shop and receive their goods. Moreover, 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.

Furthermore, demand for distribution space has been rising, as e-commerce continues to expand to sectors like grocery and furniture. Also apart from e-retail, food & beverage and home improvement companies are helping drive leasing activities.

This is spurring demand for industrial/warehouse spaces, enabling industrial landlords like Prologis, Duke Realty Corp. DRE, Terreno Realty Corporation TRNO and PS Business Parks PSB, among others, to charge higher rents.

As for Prologis, the company has made significant efforts to bank on the underlying growth opportunities. Further, amid healthy fundamentals of the industrial real estate market, the company is expected to have enjoyed robust leasing activity in the September-end quarter.

In fact, according to the Wall Street Journal, Prologis managed to secure Amazon and Home Depot as its tenants at the company’s vertical warehouse in Seattle’s Georgetown neighborhood. While the concept of vertical warehouses is not common in the United States, it is a viable option as getting adequate land for sprawling warehouses in the middle of a city to be close to customers is a huge challenge.

Further, the Tampa Bay Business Journal reported that the company is progressing well with a huge warehouse in Polk County, and has filed plans with the Southwest Florida Water Management District for a 1.078-million-square-foot warehouse in Auburndale.

This only adds to Prologis’ capacity to offer modern distribution facilities at strategic in-fill locations. Furthermore, its 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. Moreover, as these sites are located in dense urban markets, it is well suited for serving as the last-mile warehouses.

Amid these, the Zacks Consensus Estimate for the third-quarter revenues is currently pegged at nearly $713.2 million — indicating 17.1% increase from the prior-year quarter’s reported tally — which is encouraging.

However, prior to the third-quarter earnings release, there is lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the September-end quarter remained unchanged at 93 cents, over the past 30 days. Nevertheless, the figure denotes a projected year-over-year increase of around 29%.

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 see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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 0.00%.

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.

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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PS Business Parks, Inc. (PSB) : Free Stock Analysis Report
 
Prologis, Inc. (PLD) : Free Stock Analysis Report
 
Terreno Realty Corporation (TRNO) : Free Stock Analysis Report
 
Duke Realty Corporation (DRE) : Free Stock Analysis Report
 
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