The road ahead looks bright for Prologis (PLD); is now the right time to invest?

Department stores chains and online shopping platforms are busy expanding their logistics capacity to cope with the virus-driven retail boom, with the multichannel business model demanding bigger warehouses and storage facilities. The resultant increase in occupancy and rent has come as a boon for companies like Prologis, Inc. (NYSE: PLD), a leading real estate investment trust focused on logistic facilities.

Buy the Dip?

The market value of the San Francisco-based company, which mainly caters to B2B customers and retailers, reached a record high in early September but the stock experienced weakness since then, ahead of the upcoming earnings. The pullback has created a fresh opportunity to own the stock, which was otherwise considered overvalued. Analysts see PLD recouping recent losses in the coming months and strongly recommend investing in it.  

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Read management/analysts’ comments on Prologis’ Q2 report

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Prologis owes its recent growth to the increasingly significant role logistics play in commercial activities, from transportation to merchandise shipping and healthcare delivery to international trade. The company is a market leader with strong fundamentals. Also, the supply chain crisis triggered by the pandemic has made businesses revisit their inventory strategies with stress on larger storage spaces, considering the pressing need to maintain healthy stock.

From Prologis’ Q2 2021 earnings conference call:

“We do not care one iota about external growth and through M&A. It is — that is no skill of the management team, just multiple conversion and dismisses that fair that our size prevents us from growing fast. I would just invite people to look at the numbers and you can strip out the M&A from that. So M&A is opportunistic, never part of our business plan. And if we never had another dollar of M&A, outplay our growth rate against anybody else’s in any center frankly over time.”

COVID Winner

Over the past several years, the company’s quarterly earnings performance constantly outshined the estimates, thanks to its underlying strength.  In the June quarter, core funds from operations, excluding one-off items, dropped to $1.01 per share from $1.11 per share in the same period of last year. At $1.15 billion, total revenues were down 9% from last year. However, both numbers exceeded the market’s projection. The decrease is primarily attributable to the difficult comparison with the unusually strong prior-year quarter.

Anticipating continued demand growth and strong rental income in the second half, the management expects a marked increase in full-year revenues and earnings. Prologis is scheduled to publish third-quarter results on October 15 before the opening bell. Market watchers predict a multi-fold increase in earnings to $0.52 per share, on revenues of $1.03 billion.

Pros & Cons

Prologis’ strategically located facilities give it an edge over rivals as the company’s impressive real estate footprint makes it difficult for others to replicate the model. However, the company’s exposure to Amazon.com, Inc. (NASDAQ: AMZN), which accounts for a large chunk of its revenue, is a disadvantage though efforts are on to reduce its dependence on the e-commerce giant.

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FedEx: Three factors that could drive growth going forward

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This week, Prologis’ stock made modest recovery from a two-month low, in a sign that the losing streak is probably over. The shares traded higher early Friday and stayed above their long-term average.