Prologis (PLD) reported mixed results for the second quarter of 2024. The stock gained 1.4% yesterday after the company surprised investors by raising its annual earnings outlook. PLD expects its bottom line to benefit from the limited availability of warehouses and the growing demand for data center space.
PLD is a global logistics real estate company specializing in industrial properties.
PLD: Q2 Snapshot
PLD reported Q2 net earnings of $0.92 per share, which surpassed the Street’s expectations of $0.62 but decreased 30% year-over-year. Nevertheless, the adjusted core FFO (Funds from Operations) improved to $1.36 from $1.25 per share in the year-ago period.
Meanwhile, revenues declined by about 18.1% to $2.01 billion but came in higher than the consensus estimate of $1.86 billion. The top line benefited from 12.2% year-over-year growth in rental income to $1.85 billion.
Additionally, leasing activity improved in Q2 with 46.6 million square feet (MSF) of leases commenced in the company’s owned and managed portfolio, compared with 43.3 MSF in the year-ago quarter.
Shifting Market Landscape
Prologis highlighted that the industrial real estate market is witnessing a slowdown after pandemic-driven e-commerce growth. This is indicated by warehouse vacancy rates that climbed to 6.1% from 4% in the year-ago quarter.
Therefore, the company’s CEO, Hamid Moghadam, expects the limited new construction to keep warehouse supply tight and potentially drive rental prices higher in the near future.
Furthermore, Prologis sees artificial intelligence (AI) as a major catalyst for future growth. It expects the demand for data centers to keep increasing amid the AI boom. Importantly, these centers offer higher value than traditional warehouses, thereby bolstering Prologis’ confidence in their long-term outlook.
It should be noted that according to the TipRanks Bulls Say, Bears Say tool, analysts bullish on PLD stock believe that the company’s expansion in the data center market could help open new revenue streams.
Improved Outlook
Based on positive future growth factors, Prologis raised its earnings per share outlook for the full year 2024. PLD now expects EPS of $3.25 to $3.45 versus the prior outlook of $3.15 to $3.35.
Furthermore, the company maintained its guidance for the average occupancy rate to be between 95.75% and 96.75%. Additionally, cash same-store NOI (Net Operating Income) growth for the year is pegged at 6.25%-7.25%.
Is PLD a Good Stock to Buy?
Overall, Wall Street is cautiously optimistic about the stock. It has a Moderate Buy consensus rating based on 13 Buys and five Holds. The analysts’ average price target on Prologis stock is $129.44, implying a 5.06% upside potential from current levels.
