Prologis (PLD) Q4 Earnings: What's in Store this Season?

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Prologis, Inc.PLD is slated to report fourth-quarter 2016 earnings on Jan 24, before the opening bell.

Last quarter, this industrial real estate investment trust (REIT) came up with better-than-expected funds from operations (FFO) per share figure backed by growth in revenues.

Prologis has indeed been a steady performer, delivering a positive surprise in each of the past four trailing quarters, with an average beat of 3.15%. The graph below reflects the decent surprise history of the company.

Prologis Inc. Price and EPS Surprise

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

Also, over the past one year, shares of Prologis outperformed the Zacks categorized REIT Equity Trust - Other industry. While Prologis returned 37.6% the industry gained 11.5%.

Let's see how things are shaping up for Prologis prior to this announcement.

Earnings Whispers

Our proven model does not conclusively show that Prologis will beat on earnings this season. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as you will see below.

Zacks ESP: The Earnings ESP for Prologis is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 63 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Prologis' Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors to Consider

Per a study by the commercial real estate services' firm CBRE Group Inc. CBG , for the U.S. industrial market, availability fell for 26 straight quarters to 8.2% in the fourth quarter.

In fact, demand for logistics infrastructure and efficient distribution network remained high over the past several quarters, amid an e-commerce boom, growth in industries and companies opting for consolidation of operations for improving supply chain efficiencies. This helped the industrial real estate market to grow and given Prologis' solid capacity, the company has efficiently capitalized on this trend.

Also, Prologis' build-to-suit activity remained solid in 2016, with the company completing 18 such development projects in the second half of the year. These projects included over 5.5 million square feet and are located both within the U.S. and abroad. Further, this industrial REIT was awarded 21 build-to-suit development projects, during the same period, denoting over 6.5 million square feet of space.

However, the gap between supply and demand "was the tightest since 2010" according to the CBRE Group study. Also, subsequent to a solid beginning to the year, fourth-quarter demand witnessed a decline, with positive net absorption of 47.0 million square feet falling 41% sequentially and 36% year over year.

Amid all this, chances of any robust improvement in rent and occupancy growth in the to-be-reported quarter seem limited. Also, a whole lot of new buildings are slated to be completed and made available in the market this year and the next, leading to higher supply and lesser scope for rent and occupancy growth, going forward.

Therefore, prior to the fourth-quarter earnings release, there was lack of any solid catalyst for becoming overtly optimistic about the company's business activities and prospects. As such, the Zacks Consensus Estimate of FFO per share for the to-be-reported quarter remained unchanged at 63 cents per share over the past 60 days.

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 they have the right combination of elements to report a positive surprise this quarter:

Ashford Hospitality Prime, Inc. AHP , slated to release earnings results on Feb 22, has an Earnings ESP of +16.67% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

CubeSmart CUBE , slated to release earnings results on Feb 16, has an Earnings ESP of +2.70% and a Zacks Rank #3.

Note: All EPS numbers presented in this write up represent funds from operations (FFO) per share. 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.

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CBRE Group Inc. (CBG): Free Stock Analysis Report

Prologis Inc. (PLD): Free Stock Analysis Report

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CubeSmart (CUBE): Free Stock Analysis Report

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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.

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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