Prologis ($PLD): potential upside?

Investment idea by DTI

Exchange: NYSE
SectorFinancial
IndustryREIT Industrial

Contents:

 

Entry strategy

Price: 64.42
Stop-loss: 62.48
Take profit: 74
Investment horizon: up to 3 months

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Company details

Prologis, Inc. is a real estate investment trust (REIT) specializing in industrial property. Prologis is the world's biggest owner of warehouses and logistic facilities. The company was formed in 2011 through a merger between AMB Property Corporation and ProLogis.

Prologis market capitalization is $35 billion. At the end of 2017 it had $79 billion of assets under management. Prologis' headquarters are located in San-Francisco.

Financial summary of Prologis performance is presented in Table 1:

PLD financial overview
Table 1. Prologis Inc. ($PLD) financial overview. Source: MarketWatch
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Technical analysis (trading plan)

PLD trading planPicture 1. Prologis Inc. ($PLD) trading strategy. 1 day chart. Source: TradingView

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Fundamental analysis

Prologis grows its revenue at a rate far ahead of the market (see Table 2). Moreover, the company has surpassed revenue expectations for every quarter since Q1 of 2015.

PLD growth rates
Table 2. Revenue growth of Prologis ($PLD). Source: Reuters

Prologis is also more profitable: its net profit margin over the last 12 months was 47.15%, while that of its peers was only 43.82% (see Table 3).

PLD profitability
Table 3. Prologis ($PLD) profitability rates. Source: Reuters

Yet Prologis remains cheaper than its competitors. Its P/E is only 29 versus the industry average of 34.89. There were periods in the last 5 years when Prologis was valued at twice the rate compared to its peers, which, given solid fundamentals, opens possibility for growth.

PLD valuation ratios
Table 4. Prologis ($PLD) valuation ratios. Source: Reuters

Prologis growth might be forstered by the general acceleration of the industrial property market. According to CBRE, demand pressures pushed the rent rates up 1.9% to $7.01 per square foot — highest level since 1989. Such growth is partially fueled by the rise of e-commerce and same-day delivery.

Apart from that, demand for industrial areas includes companies that are interested in expanding their offices or relocating from expensive urban areas. In March this year Prologis sold Facebook its 21-building complex in Menlo Park for $400 million. All the buildings will be demolished, so that Facebook can build office spaces and residential suits for its staff.

Prologis is poised to be the winner from this trend, mainly due to its dominating position, which was further strengthened by the recent takeover of DCT Industrial Trust, a smaller competitor. Prologis debt-to-equity rate remains at a moderate 0.51 (industry average is 0.84), which means the company will be able to finance further expansion using debt.

 


Also published on Medium.