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What's in Store for Prologis (PLD) This Earnings Season?

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Prologis, Inc. (PLD - Free Report) is slated to report third-quarter 2021 earnings on Oct 15, before the bell. The company’s quarterly results will likely highlight growth in revenues as well as funds from operations (FFO) per share.

In the last reported quarter, this industrial real estate investment trust (REIT) delivered a surprise of 2.02% in terms of FFO per share. The better-than-expected performance was driven by all-time low vacancies in its markets that aided rent growth and valuation increases.

Over the preceding four quarters, Prologis surpassed the FFO per share estimates on each occasion, the average beat being 2.69%. 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 the third-quarter results announcement.

Factors at Play

The industrial real estate market is still firing on all cylinders with robust demand, rents and pipeline scaling new records. What is encouraging is that demand in the U.S. industrial market outpaced supply for the third quarter in a row, per a report from Cushman & Wakefield (CWK - Free Report) .

There was a net absorption of 140.7 million square feet (msf) of space in the September-end quarter, reflecting the most space ever absorbed in a single quarter of any year reported by Cushman & Wakefield. The tally is 98% higher than the third-quarter 2020 number. Warehouse/distribution space emerged as the strongest secondary property type. For the fourth consecutive quarter, new leasing activity exceeded 200 msf and came in at 207.9 msf. This reflects the surge in digital sales, driving e-commerce leasing, together with third-party logistics providers, which helped warehouses/distribution spaces.

The U.S. industrial vacancy rate came in at 4.1% at the end of third-quarter 2021, shrinking 30 basis points (bps) sequentially and 1100 bps year over year. Intense competition for space aided rent growth during the July-September quarter, which increased 8.3% year over year. With rent of $7.18 per square foot during the period in discussion turned out to be another record high rental rate for the U.S. industrial market.

Amid these favorable developments, 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. The company saw low vacancies in its markets, which will likely aid rent growth. Moreover, with global supply chains transforming for faster fulfillment and resilience, the company is likely to have captured the favorable fundamentals with its differentiated customer offerings and robust investment activity.

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.

The Zacks Consensus Estimate for quarterly revenues is currently pegged at $1.03 billion, indicating a 5.6% year-over-year rise.

The Zacks Consensus Estimate for the quarterly FFO per share moved up marginally to 1.03 cents in the past two months. The figure also suggests a year-over-year increase of 14.4%.

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

What our quantitative model predicts

We cannot conclusively predict that Prologis will be able to beat the Zacks Consensus Estimate this time. This is because the company doesn't 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 2 (Buy).

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 surprise this quarter:

Apple Hospitality REIT (APLE - Free Report) , slated to release third-quarter earnings on Nov 4, has an Earnings ESP of +18.33% and sports a Zacks Rank of 1, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Crown Castle (CCI - Free Report) , scheduled to report quarterly numbers on Oct 20, currently has an Earnings ESP of +0.19% and carries a Zacks Rank of 3.

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.