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Prologis (PLD) to Post Q2 Earnings: Is a Surprise in Store?

Prologis, Inc. PLD is likely to beat expectations when it reports second-quarter 2017 earnings on Jul 18, before the opening bell.

Last quarter, this industrial real estate investment trust (REIT) delivered a positive surprise of 1.61%. Results were backed by growth in revenues and occupancy gains.

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 1.90%. The graph below depicts this surprise history.

Prologis, Inc. Price and EPS Surprise

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

Also, over the past 30 days, the Zacks Consensus Estimate of funds from operations (“FFO”) per share for the to-be-reported quarter inched up 1.3% to 78 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 of 80 cents and the Zacks Consensus Estimate of 78 cents, is +2.56%. 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, thanks to rising internet retailing and supply-chain consolidation. This, in turn, is generating solid demand for logistics infrastructure and efficient distribution networks. While there is a rising demand for modern logistics facilities with vacancy rates tightening, new supply is still manageable which has been pushing up rents significantly in many of the markets.

Amid this, Prologis is well poised to benefit from its capacity to offer modern distribution facilities in strategic in-fill locations. The company is anticipated to witness revenue growth in the second quarter and witness high level of occupancy.

Moreover, Prologis' build-to-suit activity remained robust this year, with the company completing 20 such development projects in the first half. These projects included over 7 million square feet and involved an aggregate expected investment of $430 million.

Further, this industrial REIT commenced 17 build-to-suit development starts during the same period, comprising over 7 million square feet of space and involving a total estimated investment of $620 million.

Notably, 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. This is because more than 75% of its build-to-suits starts were with the multi-site customers.

In addition, shares of Prologis outperformed the Zacks categorized REIT and Equity Trust – Other industry over the past three months. In fact, its shares ascended around 5.9%, against the 0.4% decline of 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 they have the right combination of elements to report a positive surprise this quarter:

Host Hotels & Resorts, Inc. HST, slated to release second-quarter results on Jul 26, has an Earnings ESP of +6.52% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

SL Green Realty Corp. SLG, scheduled to release earnings on Jul 19, has an Earnings ESP of +0.62% and a Zacks Rank #3.

Equity Residential EQR, slated to release earnings on Jul 25, has an Earnings ESP of +1.30% 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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