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

Prologis, Inc. PLD is slated to report second-quarter 2018 earnings on Jul 17, before the opening bell.

In the last reported quarter, this industrial real estate investment trust (REIT) delivered a better-than-expected result in terms of funds from operations (FFO) per share, witnessing a positive surprise of 8.1%. Net effective rent change improved 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. This resulted in an average positive surprise of 4.33%. This is depicted in the graph below:

Prologis, Inc. Price and EPS Surprise
 

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

The Zacks Consensus Estimate for the second-quarter FFO per share is currently pegged at 71 cents.

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

Factors at Play

The industrial real estate market is firing on all cylinders, backed by an improving economy and job-market gains, strengthening e-commerce market and high consumption levels. Demand for warehouses, distribution centers and other industrial property remains strong, and continues to surpass supply levels.

In fact, per a study by the commercial real estate services firm — CBRE Group Inc. CBRE — availability fell for 32 straight quarters to 7.2% for the U.S. industrial real estate market in the April-June quarter. Notably, this denotes the lowest level since 2000.

Given Prologis’s capacity to offer modern distribution facilities at strategic in-fill locations, the company remains well positioned to capitalize on these growth opportunities. It also has solid balance-sheet strength. In the to-be-reported quarter, the company is expected to have enjoyed high occupancy of its properties and healthy rent levels.

Moreover, Prologis’ build-to-suit activity has been stellar in the year so far, with the company completing 16 such development projects in the first half. These projects included more than 6.2 million square feet of area and involved total expected investment (TEI) of around $475 million on a Prologis-share basis. Further, this industrial real estate investment trust (REIT) commenced 14 build-to-suit development starts during the same period, comprising more than 4.7 million square feet of space and involving a TEI of approximately $450 million on a Prologis-share basis.

This high number of build-to-suit development projects highlights the advantageous location of the company’s land bank, as well as demand from its multi-site customers, many of whom are focused on e-commerce. These sites are positioned in urban markets that are suited for serving as the last warehouse before goods are delivered to consumers.

Nevertheless, recovery in the industrial market has continued for long. Also, there is intense competition in the market. Amid these, the Zacks Consensus Estimate for the second-quarter rental revenues is currently pegged at $560 million, indicating 0.7% increase sequentially.

Further, the stock has seen the Zacks Consensus Estimate of FFO per share for the to-be-reported quarter being revised 1.4% upward to 71 cents over the past three months. However, the figure denotes a projected year-over-year decrease of around 15.5%.

Year to date, Prologis has outperformed the industry it belongs to. The company’s shares have appreciated 1.8% in this period compared with its industry’s growth of 0.5%.

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.
 
Zacks ESP: The Earnings ESP for Prologis is +2.26%.

Zacks Rank: Prologis carries a Zacks Rank #3.

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:

Ventas Inc. VTR, slated to release second-quarter results on Jul 27, has an Earnings ESP of +2.52% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Public Storage PSA, scheduled to release earnings on Aug 1, has an Earnings ESP of +0.17% and a Zacks Rank #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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Prologis, Inc. (PLD) : Free Stock Analysis Report
 
Ventas, Inc. (VTR) : Free Stock Analysis Report
 
Public Storage (PSA) : Free Stock Analysis Report
 
CBRE Group, Inc. (CBRE) : Free Stock Analysis Report
 
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