Prologis (PLD) To Post Q3 Earnings: Is A Surprise In Store?

Prologis, Inc. (NYSE:PLD) is likely to beat expectations when it reports third-quarter 2017 earnings on Oct 17, before the opening bell.

Last quarter, this industrial real estate investment trust (REIT) delivered a positive surprise of 7.7%. Results reflected growth in rents and high occupancy.

Additionally, over the trailing four quarters, the company exceeded the Zacks Consensus Estimate in three occasions and met in the other, with an average beat of around 3.4%. The graph below depicts this surprise history.

Moreover, over the past 60 days, the Zacks Consensus Estimate of funds from operations (“FFO”) per share for the to-be-reported quarter inched up 1.5% to 67 cents, reflecting analysts’ bullish sentiments on the stock.

Why a Likely Positive Surprise?

Our proven model shows that Prologis is likely to beat estimates because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) to beat estimates, and Prologis has the right mix.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP, which represents the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +0.31%. This is a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: Prologis’ Zacks Rank #2, when combined with a positive ESP, makes us reasonably confident of a positive surprise this season.

Conversely, 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.

What's Driving the Better-than-Expected Earnings?

The industrial real estate market has been experiencing solid growth, backed by the recovering economy and job market improvements, strengthening e-commerce market and healthy manufacturing environment.

Amid this, Prologis is well poised to benefit from its capacity to offer modern distribution facilities at strategic in-fill locations. Moreover, given its balance-sheet strength and prudent financial management, the company remains well poised to capitalize on growth opportunities.

In the third quarter, Prologis is anticipated to witness rent growth and experience high level of occupancy. Also, the Zacks Consensus Estimate for the third-quarter rental revenues is currently pegged at $573 million, while the same from strategic capital is projected at $52 million.

Furthermore, in August, Prologis announced completion of the acquisition of its partner’s stake in the Brazil portfolio. This move enabled the company gain full ownership of Prologis CCP, which was a joint venture between Prologis and Cyrela Commercial Properties.

As a result, the previous joint venture, Prologis CCP, which has now been renamed to Prologis Brazil, currently owns and operates 9.2 million square feet of logistics facilities and land. These have the capacity to support 12 million square feet of new logistics facilities in the country’s key markets of São Paulo and Rio De Janeiro.

In addition, Prologis has outperformed the industry it belongs to, year to date. In fact, shares of the company have gained 23.6% year to date, significantly outperforming 4.5% growth recorded by the industry.



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:

CoreSite Realty Corporation (NYSE:COR) , slated to release third-quarter results on Oct 26, has an Earnings ESP of +0.76% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Digital Realty Trust, Inc. (NYSE:DLR) , scheduled to release earnings on Oct 25, has an Earnings ESP of +0.24% and a Zacks Rank #2.

Cousins Properties Inc. (NYSE:CUZ) , slated to release quarterly numbers on Oct 25, has an Earnings ESP of +1.13% 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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