Prologis Stock Surges: Why the Rally May Continue
Prologis Inc. (NYSE: PLD) stock is up more than 4% in early trading after the real estate investment trust (REIT) delivered a beat-and-raise quarterly earnings report. Revenue of $2.05 billion was about 1% higher than the forecast of $2.03 billion. The net income was even better. EPS of $1.49 surpassed the consensus estimate of $1.44 by $0.05.
Prologis is at the core of the data center buildout that is essential to the broader artificial intelligence (AI) story. That’s just one of several reasons to believe the opportunity in PLD stock will extend beyond this print.
High Occupancy and Record Leasing Signal Underlying Strength
REITs have been a poor investment in the last three years, and Prologis is no exception. PLD stock has generated a total return of around 27% in the last three years, far below the sector average for finance stocks.
However, this performance requires context. Prologis benefited from a surge in 2021 and 2022 as its portfolio of logistics and warehouse properties was essential to strong consumer demand.
Even with demand normalizing, the company has maintained occupancy rates of approximately 95% and its top 10 tenants do not contribute more than 14% of net effective rent. In fact, the company has reported increased leasing activity despite tariff uncertainty, including record leasing activity in the third quarter.
Future growth will come from the company’s pivot into sectors such as data centers and sustainable energy and storage. The company currently has 5.2 gigawatts of utility-fed capacity that has either been installed or is committed.
Prologis Continues to Deliver Strong, Cash-Generating Growth
Funds from operations (FFO) is one of the most important metrics used by investors to gauge the health of a REIT. FFO provides a cleaner measure of a company’s operating performance and cash-generating ability for companies that are heavily invested in depreciating assets, such as real estate.
Prologis raised its forecast for core funds from operation (FFO) per share to a range between $5.78 and $5.81. That's in line with analysts’ estimates of $5.77 and slightly above the guidance for a range between $5.75 and $5.80 that the company issued in its prior earnings report.
This trend has been in place for several quarters. For investors, this means that the company’s dividend, which increased by 12% in the last year, looks safe. It also means that the company will have ample cash on hand to pay down its debt, which is in healthy ranges.
Europe’s Supply Shortage Could Be Prologis’ Next Big Catalyst
According to the company’s internal research, Europe is facing a multi-year supply-demand imbalance. The continent’s logistics real estate market is valued at around 500 billion euros (approximately $580 billion USD). However, that supply is constrained by regulations, labor shortages, and infrastructure limitations.
Prologis estimates that over 150 billion euros (roughly $175 billion USD) in new development is needed, and it gives companies the ability to launch new projects in those areas with a distinct competitive advantage.
In its earnings presentation, Prologis highlighted its European operating portfolio, which totals over 252 million square feet and has lease rates above 95%. Furthermore, Prologis is actively deploying capital in Europe to meet demand where other companies may lack the ability to do so.
PLD Stock Breaks Out as Investors Eye Long-Term Expansion
The post-earnings move in PLD stock has put it near the analysts’ consensus price target and its 52-week high. The breakout above both its 50-day simple moving average (SMA) and the upper Bollinger Band signals bullish momentum. But the stock price could be stretched at these levels, and there is a risk of a short-term pullback after this rapid ascent.
Investors will want to watch the daily volume and what analysts have to say after the company’s earnings call. In September, Bank of America upgraded Prologis from a Hold to a Buy and increased its price target to $130, about 6.5% above the consensus price.
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