Prologis (PLD) To Post Q1 Earnings: What's In The Cards?

Prologis, Inc. (NYSE:PLD) is slated to report first-quarter 2017 earnings on Apr 18, before the opening bell.

Last quarter, this industrial real estate investment trust (REIT) came up with in-line funds from operations (FFO) per share figure. However, at the end of fourth-quarter 2016, occupancy level in the company’s operating portfolio was 97.1%, expanding 20 basis points year over year. Notably, the company ended 2016 with record global occupancy.

Additionally, over the trailing four quarters, the company beat the Zacks Consensus Estimate in three occasions and met estimate in the other, with an average beat of around 2.34%. The graph below depicts this surprise history.

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

Factors to Consider

Per a study by the commercial real estate services’ firm – CBRE Group Inc. (NYSE:CBG) – the overall U.S. industrial real estate market remained upbeat in first-quarter 2017, with essentially unchanged national availability rate despite increased supply.

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. Prologis has efficiently capitalized on this trend on the back of its solid capacity.

However, recovery in the industrial market has continued for long and chances of any striking decrease in availability rates are less. Moreover, supply has been increasing and according to CBRE Econometric Advisors estimations, about 45 million square feet of industrial space was completed in Q1. This marks the highest first-quarter level since 2008.

Amid this, chances of any robust improvement in rent and occupancy growth in the to-be-reported quarter seem limited. In addition, a whole lot of new buildings are slated to be completed and made available in the market this year and the next. This will lead to higher supply and lesser scope for healthy growth in rent and occupancy, moving ahead.

Hence, prior to the first-quarter earnings release, there is 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 over the past 60 days.

Further, over the past three months, shares of Prologis underperformed the Zacks categorized REIT Equity Trust – Other industry. While Prologis logged in a gain of 5.0%, the industry climbed 5.7% over this period.



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 are pegged 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.

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:

HCP Inc. (NYSE:HCP) , slated to release earnings results on May 2, has an Earnings ESP of +2.04% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Host Hotels & Resorts, Inc. (NYSE:HST) , scheduled to release earnings results on Apr 28, has an Earnings ESP of +2.56% 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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