Key Factors to Impact Prologis' (PLD) Earnings This Season

Prologis, Inc. PLD is slated to report first-quarter 2019 earnings on Apr 16, before the opening bell. The company’s quarterly performance is likely to reflect growth in revenues, though funds from operations (FFO) per share are expected to witness a decline.

In the last reported quarter, this industrial real estate investment trust (REIT) delivered a positive surprise of 1.27% in terms of FFO per share. The company witnessed solid top-line growth in the quarter, while period-end occupancy remained high.

Over the preceding four quarters, Prologis surpassed the FFO per share estimates in three occasions and met in the other, average positive surprise being 2.70%. This is depicted in the graph below:

Prologis, Inc. Price and EPS Surprise

Prologis, Inc. Price and EPS Surprise | Prologis, Inc. Quote

Let’s see how things are shaping up for this announcement.

Factors at Play

The industrial real estate asset category has grabbed headlines on the back of high consumer spending, strength in e-commerce market and a healthy manufacturing environment. 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.

Per a recent report from Newmark Knight Frank, vacancy level at 5% during the first quarter of 2019 remained at a cyclical low, while average asking rents moved up 9.2% year over year to $7.24 per square feet. Moreover, solid fundamentals of the industrial real estate market have lured developers who aim to capitalize on this asset category’s healthy returns. As such, the national industrial construction pipeline remains robust, with 274.3 million square feet currently under construction.
Amid this favorable environment, Prologis is well poised to benefit from its capacity to offer modern distribution facilities at strategic in-fill locations. The company is actively banking on its growth opportunities through acquisitions and opportunistic developments.

Further, the company’s 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. These sites are positioned in urban markets suited for serving as the last warehouse before goods are delivered to consumers.

To support its growth endeavors, the company also possesses decent balance-sheet strength and being a market leader, it has the ability to raise capital at favorable rates. Amid these, the company is expected to have enjoyed high occupancy of its properties and healthy rent levels in the to-be-reported quarter. Also, the Zacks Consensus Estimate for the first-quarter rental revenues is currently pegged at $674 million, indicating 21.2% increase from the prior-year quarter, which is encouraging.

However, recovery in the industrial market has continued for long and a whole lot of new buildings are becoming available in the market, leading to higher supply and lesser scope for rent and occupancy growth. Additionally, any protectionist trade policies will have an adverse impact on economic growth, as well as the company’s business over the long term.

The Zacks Consensus Estimate of FFO per share for the quarter under review remained unchanged at 72 cents, over the past two months. The figure also denotes a projected year-over-year decline of around 10%.

Shares of Prologis have gained 17.1% in the past three months compared with the 11.6% increase recorded by its industry.

Here is what our quantitative model predicts:

Prologis has 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 +0.46%.

Zacks Rank: Prologis carries a Zacks Rank #3, currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

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:

Digital Realty Trust, Inc. DLR, slated to release first-quarter earnings on Apr 25, has an Earnings ESP of +1.27% and a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alexandria Real Estate Equities, Inc. ARE, scheduled to release earnings on Apr 29, has an Earnings ESP of +0.3% and a Zacks Rank #2.

Public Storage PSA, set to report quarterly numbers on May 1, has an Earnings ESP of +0.79% and 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.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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