On Apr 4, 2013, we reiterated our long-term recommendation on
), a San Francisco-based industrial real estate investment trust
(REIT), at Neutral. The move reflects the company's solid
operating platform, recent deals and strategic initiatives toward
global expansion. Yet, in the presence of an uncertain economic
environment we are not overtly optimistic on the stock and
believe that the risk/reward profile is currently balanced.
Prologis provides industrial distribution warehouse space in some
of the busiest distribution markets across the globe. With growth
in e-Commerce, there is an increasing demand for Class-A
facilities and Prologis stands to benefit as it has the capacity
to offer modern distribution facilities in strategic infill
Its properties are typically located in large, supply-constrained
infill markets at close proximity to airports, seaports, and
ground transportation facilities, which enable rapid distribution
of customers' products. This has enabled the company to gain a
significant pricing advantage over its competitors. Moreover,
leasing decisions that were earlier postponed due to volatility
in the markets are gradually coming off the shelf.
Curently, Prologis is significantly capitalizing on promising
opportunities across the globe. Its recent build-to-suit deal
with end-to-end e-Commerce service provider - SpeedFC, a
) and with Chinese logistics provider, Deppon are expected to
contribute meaningfully to the company's top line. Also, the
joint venture with Norges Bank Investment Management is a
strategic fit as it will enable the company to substantially
penetrate the industrial real estate market of Europe.
Yet, given its international presence, Prologis often faces
unfavorable foreign currency movements and other economic
fluctuations that impair its top-line growth. Moreover, the
continued troubles in the residential sector are weighing on
commercial property operations. In addition, market vacancy
increases will offset Prologis' ability to push through rental
rate increases. This has significantly affected the long-term
growth of the company.
Prologis' core FFO (funds from operations) per share of 42 cents
in the fourth quarter of 2012 was in line with the Zacks
Consensus Estimate. Total revenue during the reported quarter was
$517.6 million, up 13.3% from the prior-year period and well
ahead of the Zacks Consensus Estimate of $476 million.
Over the last 7 days, the Zacks Consensus Estimate for full-year
2013 remained unchanged at $1.67 per share while the Zacks
Consensus Estimate for full-year 2014 stood at $1.79 per share.
In addition, Prologis has now delivered positive earnings
surprises in 2 out of past 4 quarters with an average beat of
2.36%. Hence, Prologis now has a Zacks Rank #3 (Hold).
Other Stocks to Consider
REITs that are currently performing well include
Federal Realty Investment Trust
Cousins Properties Incorporated
), both carrying a Zacks Rank #2 (Buy).
FFO, a widely used metric to gauge the performance of REITs,
is obtained after adding depreciation and amortization and other
non-cash expenses to net income.
COUSIN PROP INC (CUZ): Free Stock Analysis
FED RLTY INV (FRT): Free Stock Analysis
NAVARRE CORP (NAVR): Free Stock Analysis
PROLOGIS INC (PLD): Free Stock Analysis
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