Key Factors to Impact Prologis (PLD) This Earnings Season

Prologis, Inc. PLD is slated to report second-quarter 2020 earnings on Jul 21, 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 positive surprise in terms of FFO per share.The better-than-expected performance was driven by decent growth in rental income. Occupancy level was also healthy.

Over the preceding four quarters, Prologis surpassed the FFO per share estimates on three occasions and met in the other, the average beat being 2.02%. 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

In a rising e-commerce market, the industrial real estate asset category has continued to play a key role, transforming the way how consumers shop and receive their goods. Services like same-day delivery are gaining traction, and last-mile properties in high-income urban areas have been witnessing solid pricing, occupancy and growth in rentals. Moreover, apart from e-retail, companies are making strategic moves to improve their supply-chain efficiencies, propelling demand for logistics infrastructure and efficient distribution networks.

The industrial real estate category seems to be one of the most resilient ones amid the coronavirus crisis. The stay-at-home orders have particularly prompted order of more goods online.

Per a report from Cushman & Wakefield CWK, tighter market conditions and solid demand supported rent growth in the June-end quarter, with U.S. industrial asking rents increasing 2.1% year over year. The U.S. industrial vacancy rate in the quarter came in at 5.3%, though vacancy rates have been low (below 3.0%) in the tightest markets.

Amid these, Prologis is well poised to benefit from its capacity to offer modern logistics facilities at strategic in-fill locations.The company is anticipated to have witnessed healthy demand on the fast adoption of e-commerce, with leasing activity getting a boost in the to-be-reported quarter. Though any robust occupancy growth is unlikely, the level is still expected to be high.

Markets with tight supply are likely to have recorded rents at or above the pre-pandemic levels, benefiting Prologis’ top line. Apart from these, the company’s expansion efforts, through acquisitions and developments, in recent quarters are likely to have boosted the top line in the quarter under review. Apart from this, Prologis has decent balance-sheet strength to back its growth endeavors. Being a market leader, the company has the ability to raise capital at favorable rates.

Amid these, the Zacks Consensus Estimate for quarterly revenues is currently pegged at $927.3 million, suggesting a 32.3% year-over-year increase.

However, though industrial real estate fundamentals seemed more resilient than other asset categories, are not immune. The current slowdown in the economy is likely to have affected demand for space in some markets in the quarter to be reported. Rent relief and deferrals might have been an issue, specifically, for the company’s smaller tenants that are adversely impacted by the pandemic.

Prior to the second-quarter earnings release, there is lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. The Zacks Consensus Estimate for the second-quarter FFO per share remained unrevised at 99 cents over the past month. Nevertheless, the figure calls for a year-over-year increase of 28.6%.

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 -1.01%.

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

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:

First Industrial Realty Trust, Inc. FR, slated to release second-quarter earnings on Jul 22, has an Earnings ESP of +0.96% 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.

Apartment Investment and Management Company AIV, set to report quarterly numbers on Aug 3, currently has an Earnings ESP of +3.00% 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.

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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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