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Will Prologis (PLD) Beat Earnings on Solid Sector Scenario? - Analyst Blog

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Prologis Inc. ( PLD ) is slated to report its third-quarter 2014 results on Oct 23, before the opening bell.

Last quarter, this industrial real estate investment trust (REIT) posted a 4.35% positive earnings surprise. Furthermore, the company has reported an average positive earnings surprise of 3.04% over the past four quarters. Let's see how things are shaping up for this announcement.

Factors to Consider

Prologis has been capitalizing on growth opportunities across the globe, with notable investments in the U.S., Canada, Netherlands, China, Europe, Japan and Latin America in recent times. Amid a larger customer base, rise in e-Commerce application and supply-chain consolidation, there is an increasing demand for high-quality logistics facilities in these markets. However, with new construction starts yet to gain any rapid pace, we expect rents to increase significantly in many of the markets worldwide. With its solid capacity, Prologis is well capitalizing on this demand-supply imbalance and the company's strategic efforts have also helped in achieving an improvement in liquidity.

Notably, a recent study by the CBRE Group Inc. ( CBG ) revealed a continuing solid recovery in the U.S. industrial market in the third quarter of 2014, with industrial availability posting a 20 bps decline (to 10.6%) from the prior quarter. Such improvement is expected to continue in the coming quarters too.

However, given its international presence, Prologis often faces unfavorable foreign currency movements and other economic fluctuations that impair its top-line growth. Notably, in 2013, the company generated approximately 30.1% of its revenue from operations outside the U.S. Therefore, state of affairs and developments associated with international operations have a notable impact on its performance.

Earnings Whispers?

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

Zero Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 46 cents per share. Hence, the difference is 0.00%.

Zacks Rank #2: Prologis' Zacks Rank #2 (Buy) when combined with a 0.00% Earnings ESP makes surprise prediction difficult.

Notably, we caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

You could consider other stocks in the REIT sector that have both a positive Earnings ESP and a favorable Zacks Rank:

Mack-Cali Realty Corp. ( CLI ) has an Earnings ESP of +2.13% with a Zacks Rank #2. The company will report its third-quarter 2014 results on Oct 30.

Highwoods Properties Inc. ( HIW ) has an Earnings ESP of +2.74% with a Zacks Rank #2. The company will report its third-quarter 2014 results on Oct 28.

Note: 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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HIGHWOODS PPTYS (HIW): Free Stock Analysis Report

PROLOGIS INC (PLD): Free Stock Analysis Report

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MACK CALI CORP (CLI): 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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