What awaits Prologis (PLD) this earnings season?

Prologis, Inc. PLD is expected to release its third quarter 2021 results on October 15, ahead of the bell. The company’s quarterly results will likely highlight revenue growth as well as funds from operations (FFO) per share.

In the last quarter published, this industrial property investment fund (REIT) realized a surprise of 2.02% in terms of FFO per share. The better than expected performance is explained by the historically low vacancy rate in its markets, which has contributed to the growth in rents and the increase in valuations.

In the previous four quarters, Prologis has beaten FFO per share estimates each time, the average beat being 2.69%. This is illustrated in the graphic below:

Prologis, Inc. Price and EPS Surprise

Prologis, Inc. price-eps-surprise | Prologis, Inc. Quote

Let’s take a look at how things turned out before the third quarter results were announced.

Factors in play

The industrial real estate market is still running at full speed with robust demand, rents and pipelines hitting new records. What is encouraging is that demand in the US industrial market outpaced supply for the third consecutive quarter, per report of Cushman and Wakefield CWK.

There was a net absorption of 140.7 million square feet (msf) of space in the end of September quarter, reflecting the largest space ever absorbed in a single quarter of any year reported by Cushman & Wakefield. The tally is 98% higher than the Q3 2020 figure. Warehouses / distribution spaces have emerged as the most important type of secondary property. For the fourth consecutive quarter, new rental activity exceeded 200 msf and stood at 207.9 msf. This reflects the boom in digital sales, which is driving e-commerce leasing, as well as third-party logistics providers, which have helped warehouses / distribution spaces.

The US industrial vacancy rate stood at 4.1% at the end of the third quarter of 2021, down 30 basis points (bps) sequentially and 1,100 bps year-on-year. Intense competition for space fueled rental growth in the July-September quarter, which increased 8.3% year-on-year. With rent of $ 7.18 per square foot during the reporting period turned out to be another record rental rate for the US industrial market.

Amid these favorable developments, Prologis is well positioned to benefit from its ability to offer modern logistics facilities at strategic filling locations. The REIT is expected to have witnessed strong demand for the rapid adoption of e-commerce, with rental activity receiving support in the reporting quarter. The company has experienced low vacancy rates in its markets, which will likely support rental growth. Additionally, with the transformation of global supply chains for faster execution and resilience, the company is likely to have captured favorable fundamentals with its differentiated customer offerings and robust investing activities.

The company’s expansion efforts, through acquisitions and developments, over the past few years have likely increased sales in the next quarter.

Zacks’ consensus estimate for quarterly revenue is currently set at $ 1.03 billion, indicating a 5.6% year-over-year increase.

Zacks’ consensus estimate for the quarterly FFO per share edged up to 1.03 cents over the past two months. The figure also suggests a year-over-year increase of 14.4%.

However, with the asset class being attractive in today’s tough times, there is a development boom in some markets. This high supply is expected to have intensified competition and reduced pricing power during the end of September quarter.

What our quantitative model predicts

We cannot conclusively predict that Prologis will be able to beat Zacks’ consensus estimate this time around. This is because the company does not have the right combination of two key ingredients – a ESP on earnings and Zacks Rank # 3 (Hold) or higher – to increase the chances of a winning win.

You can discover the best stocks to buy or sell before they are flagged with our ESP Income Filter.

ESP on income: The ESP of earnings for Prologis is 0.00%.

Zack Rank: Prologis currently has a Zacks rank of 2 (Buy).

Actions worth a look

Here are a few stocks in the REIT sector that you might want to consider, as our model shows that they have the right mix of elements to report a surprise this quarter:

Apple Hotel REIT APLE, which is expected to release its third quarter results on November 4, has an ESP on earnings of + 18.33% and currently has a Zacks rank of 1. You can see The full list of today’s Zacks # 1 Rank (Strong Buy) stocks here.

Crown Castle CCI, which is expected to release quarterly figures on October 20, currently has an ESP on earnings of + 0.19% and a Zacks rank of 3.

To note: Everything related to earnings presented in this valuation represents funds from operations (FFOs) – a measure widely used to assess 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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