Back to top

Image: Bigstock

Key Factors to Impact Prologis (PLD) This Earnings Season

Read MoreHide Full Article

Prologis, Inc. (PLD - Free Report) is slated to report fourth-quarter and full-year 2020 earnings on Jan 26, before the bell. The company’s quarterly results will likely 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 surprise of 2.27% in terms of FFO per share. The better-than-expected performance was driven by decent growth in rental income.

Over the preceding four quarters, Prologis surpassed the FFO per share estimates on three occasions and met in the other, the average beat being 4.22%. 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 have shaped up prior to this announcement.

Factors at Play

The industrial real estate category has been one of the most resilient ones amid the coronavirus pandemic. Rise in digital sales has prompted e-commerce leasing. Moreover, apart from e-retail, companies are making strategic moves to boost supply-chain efficiencies, propelling demand for logistics infrastructure and efficient distribution networks.

Per a report from Cushman & Wakefield (CWK - Free Report) , there was a net absorption of 89.8 million square feet (msf) of space in the fourth quarter, marking the strongest single quarter ever recorded. As a result, the year-end 2020 tally reached 268.4 msf, exceeding the 240.9 msf reported at the prior-year end by 11.4%. New leasing activity was 178.8 msf in the quarter, bringing the annual tally to an all-time high of 659.1 msf. This reflects the surge in digital sales, driving e-commerce leasing together with third-party logistics providers, which helped warehouses/distribution spaces.  

Continued tight market conditions and solid demand supported rent growth during the December-end quarter, which increased 4.6% year on year. Particularly, asking rent of $6.76 per square foot during the quarter in discussion turn out to be a new record high rental rate for the U.S. industrial market.

The U.S. industrial vacancy rate came in at 5.2% during the quarter under review, flat quarter on quarter but up 30 basis points year on year. Although there has been a marginal increase year on year, vacancy rates have been low (at or under 3%) in the tightest markets. In addition, the current construction industrial pipeline has reached a new record high for the market to 360.7 msf.

Amid these, Prologis is well poised to benefit from its capacity to offer modern logistics facilities at strategic in-fill locations. The REIT is anticipated to have witnessed healthy demand on the fast adoption of e-commerce, with leasing activity getting a support in the to-be-reported quarter. Occupancy level is expected to have been high.

Apart from these, the company’s expansion efforts, through acquisitions and developments, in recent years are likely to have boosted the top line during the soon-to-be-reported quarter. With Prologis witnessing robust demand for high-quality logistics real estates in key locations across the globe, the company also continued its investment activities in 2020.

Prologis completed $25 billion of investment activity on an owned and managed basis for the full year. Investments in mergers and acquisitions amounted to $17 billion in 2020, while development starts totaled $2.7 billion. Building acquisitions amounted to $2 billion and building & land dispositions summed $1.5 billion. Contributions also totaled $1.8 billion in 2020. (Read more: Prologis Taps Growth With $25B in 2020 Investment Activity)

Furthermore, Prologis has decent balance-sheet strength to aid its growth endeavors. Being a market leader, the REIT has the ability to raise capital at favorable rates and is likely to have maintained financial strength with liquidity during the period in discussion.

The Zacks Consensus Estimate for quarterly revenues is currently pegged at $995.3 million, suggesting a 37.5% year-over-year jump.

However, with the asset category being an attractive one in the current challenging times, there is a development boom in some markets. This high supply is likely to have intensified competition and curbed pricing power during the December-end quarter.

Prior to the fourth-quarter earnings release, there is lack of any solid catalyst for being optimistic about the company’s business activities and prospects. The Zacks Consensus Estimate for the quarterly FFO per share has remained unrevised at 92 cents in the past month. The figure also suggests a year-over-year increase of 9.5%.

For the full year, the Zacks Consensus Estimate for FFO per share remained unchanged to $3.77 over the past month. Nevertheless, the figure indicates a 13.9% increase year over year on revenues of $3.8 billion.

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 0.00%.

Zacks Rank: Prologis currently carries a Zacks Rank of 3.

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:

Rexford Industrial Realty, Inc. (REXR - Free Report) , slated to release fourth-quarter earnings on Feb 10, has an Earnings ESP of +2.13% 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.

Stag Industrial, Inc. (STAG - Free Report) , scheduled to report quarterly numbers on Feb 10, currently has an Earnings ESP of +2.13% and carries a Zacks Rank of 2.

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.

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.4% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>