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Key Factors to Impact Prologis (PLD) This Earnings Season

Prologis, Inc. PLD is slated to report second-quarter 2021 earnings on Jul 19, before the bell. While the company’s quarterly results will likely reflect growth in revenues, funds from operations (FFO) per share might display a decline.

In the last reported quarter, this industrial real estate investment trust (REIT) delivered a surprise of 3.19% in terms of FFO per share. The better-than-expected performance was driven by decent growth in rental income.

Over the preceding four quarters, Prologis surpassed the FFO per share estimates on each occasion, the average beat being 5.21%. This is depicted in the graph below:

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

The industrial real estate market is still firing on all cylinders even mid-year with robust demand, rents and pipeline that are scaling new records. What is encouraging is that demand in the U.S. industrial market outpaced supply for the second straight quarter, per a report from Cushman & Wakefield CWK.

There was a net absorption of 110.2 million square feet (msf) of space in the June-end quarter, marking the most space ever absorbed in a single quarter of any year reported by Cushman & Wakefield. The tally is 96.7% higher than the 56 msf reported in second-quarter 2020. Warehouse/distribution space emerged as the strongest secondary property type. For the 22nd consecutive quarter, new leasing activity exceeded 100 msf and came in at 212.5 msf. This reflects the surge in digital sales, driving e-commerce leasing, together with third-party logistics providers, which helped warehouses/distribution spaces.

The U.S. industrial vacancy rate came in at 4.5% at the end of second-quarter 2021, shrinking 40 basis points (bps) quarter over quarter and 60 bps, year on year. Continued tight market conditions and solid demand aided rent growth during the June-end quarter, which increased 6.8% year on year. Asking rent of $7.03 per square foot during the period in discussion turned out to be another record high rental rate for the U.S. industrial market.

Amid these, Prologis is well poised to benefit from its capacity to offer modern logistics facilities at strategic in-fill locations. The REIT is anticipated to have witnessed healthy demand on the fast adoption of e-commerce, with leasing activity getting a support in the to-be-reported quarter. Moreover, with global supply chains transforming for faster fulfillment and resilience, the company is likely to have captured the favorable fundamentals with its differentiated customer offerings and robust investment activity.

The company’s expansion efforts, through acquisitions and developments, in recent years are likely to have boosted the top line during the soon-to-be-reported quarter. In addition, the company is likely to have gained from its industry-leading cost structure.

Furthermore, Prologis has decent balance-sheet strength to fuel its growth endeavors. Being a market leader, the REIT has the ability to raise capital at favorable rates and is likely to have maintained financial strength with liquidity during the period in discussion.

The Zacks Consensus Estimate for quarterly revenues is currently pegged at $1.03 billion, suggesting an 8.97% year-over-year jump.

The Zacks Consensus Estimate for the quarterly FFO per share moved up marginally to 99 cents in the past two months. The figure, however, suggests a year-over-year decrease of 10.8%.

However, with the asset category being an attractive one in the current challenging times, there is a development boom in some markets. This high supply is likely to have intensified competition and curbed pricing power during the June-end quarter.

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 0.00%.

Zacks Rank: Prologis 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 surprise this quarter:

Duke Realty Corp. DRE, slated to release second-quarter earnings on Jul 28, has an Earnings ESP of +0.47% and carries a Zacks Rank of 3, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Public Storage PSA, scheduled to report quarterly numbers on Aug 3, currently has an Earnings ESP of +1.76% 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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