Is Prologis (PLD) Poised to Beat Earnings Estimates? - Analyst Blog

Prologis Inc. PLD – the industrial real estate investment trust (REIT) – is slated to report its first-quarter 2014 results on Apr 22, before the opening bell. Last quarter, it posted a 2.38% positive surprise.

Also, the company has posted an average positive earnings surprise of 5.14% over the past four quarters. Let's see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model conclusively shows that Prologis will beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: The company's Earnings ESP, which represents the difference between the Most Accurate estimate (43 cents) and the Zacks Consensus Estimate (42 cents), stands at +2.38%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.

Zacks Rank: Prologis carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings.

This combination of Prologis' Zacks Rank #3 and +2.38% Earnings ESP makes us confident about a positive earnings beat.

We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum

What is Driving the Better-Than-Expected Earnings?

Improving operating fundamentals in the industrial real estate markets are expected to drive growth at Prologis. In the U.S., the industrial market has continued to recuperate and according to a recent report by CBRE Group Inc. CBG, the national industrial availability in first-quarter 2014 fell by 20 basis points from 2013 end to 11.1%. Though the rate of decline in availability has slowed to some extent due to increase in constructions, a large number of markets are yet to recover completely, reflecting the scope for growth in rents in the upcoming periods..

With its capacity to offer modern distribution facilities in strategic infill locations around the globe, Prologis stands to benefit from the demand supply imbalance. In fact, efficiencies from enhanced scale, development initiatives and recovering rents set the ground for growth of this REIT. Moreover, operating conditions are improving in Latin America as well as in Asia and the availability of Class-A distribution space remains constrained while Europe seems to emerge out of the recessionary conditions.

Prologis' core FFO per share of 43 cents in the fourth quarter was a penny ahead of both the Zacks Consensus Estimate and the year-ago quarter figure. Though total revenue declined from the year-ago quarter, it managed to beat the Zacks Consensus Estimate. Furthermore, in February, the company ushered in good news for its shareholders by announcing an 18% increase in its quarterly dividend rate to 33 cents per share.

Other Stocks to Consider

Prologis is not the only firm looking up this earnings season. Other stocks in the REIT sector that have both a positive Earnings ESP and a favorable Zacks Rank are:

Simon Property Group Inc. SPG, with an Earnings ESP of +0.45% and a Zacks Rank #2 (Buy). The company will report its first-quarter 2014 results before the market opens on Apr 22.

Kimco Realty Corporation KIM, with an Earnings ESP of +2.94% and a Zacks Rank #3 (Hold). The company will report its first-quarter 2014 results on May 7, after the closing bell.

Note: 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.