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 2021 earnings on Jan 19 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 0.97% in terms of FFO per share. Results reflected solid increases in market rents and valuations amid unprecedented low vacancies in its markets.

Over the preceding four quarters, Prologis surpassed FFO per share estimates on each occasion, the average beat being 2.36%. 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 U.S. industrial real estate market is still firing on all cylinders, ending the year with record demand, which surpassed supply for the fourth quarter consecutively, per a report from Cushman & Wakefield (CWK - Free Report) .

There was a net absorption of 145.2 million square feet (msf) of space in the December-end quarter, marking the second-highest amount of space absorbed in a single quarter reported by CWK. The tally is 47.9% higher than 99.7 msf reported in the fourth quarter of 2020. With this, the 2021 absorption reached 532.6 msf, reflecting the most absorption recorded in a single year since the start of record-keeping in 1995. Also, it marked the first time when net demand exceeded 400 msf. The figure also rose 86% from 2020’s reported tally of 286.4 msf. In 2021, new leasing activity also reached a record of 879.9 msf, up 25% from 703 msf reported in 2020.

The U.S. industrial vacancy rate came in at 3.7% in 2021, which is now 220 basis points less than the 10-year historical average of 5.9%. It also marks an all-time record low. Continued tight market conditions, aggressive competition and solid demand aided rent growth during the December-end quarter, which increased 9.5% year over year to $7.39 per square foot. In 2021, rent growth had been steadily accelerating in each quarter.

Amid these, PLD is well-poised to benefit from its capacity to offer modern logistics facilities at strategic in-fill locations. This REIT is anticipated to have witnessed healthy demand on the fast adoption of e-commerce, with leasing activity getting support in the to-be-reported quarter. Moreover, with global supply chains transforming for faster fulfillment and resilience, the company is likely to have captured 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 to-be-reported quarter. In addition, the company is likely to have gained from its industry-leading cost structure.

Furthermore, Prologis has decent balance-sheet strength to fuel its growth endeavors. A market leader, this 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 $1.06 billion, suggesting a 7.4% year-over-year jump.

The Zacks Consensus Estimate for quarterly FFO per share has moved up marginally to $1.10 in the past week. The figure also suggests a year-over-year increase of 15.8%.

For the full year, the Zacks Consensus Estimate for FFO per share has remained unchanged to $4.12 over the past month. The figure indicates an 8.4% increase year over year on revenues of $4.14 billion.

However, with the asset category being attractive in current challenging times, there is a development boom in some markets. The United States delivered 355.6 msf of new industrial products in 2021. This is almost close to 355.8 msf reported in 2020, which is a record, per the report from CWK. In the second half of the year, there was a pick-up in completions compared with the first two quarters, aggregating 103.9 msf in the third quarter and 100.9 msf in the fourth quarter. This high supply is likely to have intensified competition and affected pricing power during the December-end quarter.

Here is what our quantitative model predicts:

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

Earnings ESP: The Earnings ESP for Prologis is 0.00%. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Zacks Rank: Prologis currently carries a Zacks Rank of 3 (Hold).

Stocks That Warrant a Look

Here are two stocks from the REIT sector — Boston Properties, Inc. (BXP - Free Report) and Highwoods Properties, Inc. (HIW - Free Report) — that you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter:

Boston Properties, Inc., slated to release fourth-quarter earnings on Jan 25, has an Earnings ESP of +1.78% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Highwoods Properties, Inc., scheduled to report quarterly numbers on Feb 8, has an Earnings ESP of +2.67% and carries a Zacks Rank of 3.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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.