Prologis, Inc. (PLD) is a San Francisco-based real investment trust (REIT) that acquires, develops, and manages logistics real estate businesses. It operates through two segments—Real Estate Operations and Strategic Capital.

With a $115.76 billion market cap, PLD is a global leader in logistics real estate, operating in 29 high-growth-high-barrier markets. However, the company has an ISS Governance QualityScore of 9, indicating relatively high governance risk.

Shares of PLD have gained 66.7% in price over the past year but have slumped 7% year-to-date to close yesterday’s trading session at $156.57.

Here is what could shape PLD’s performance in the near term:

Impressive Growth History

PLD’s revenues have increased at a 19.5% CAGR over the past three years and at a 12.2% CAGR over the past five years. The company’s EBITDA has risen at a 21.1% per annum rate over the past three years and at a 13.6% CAGR over the past five years. Its net income and AFFO have improved at CAGRs of 13.4% and 9.6%, respectively, over the past three years, and at CAGRs of 17.3% and 9.5%, respectively, over the past five years. And PLD’s levered free cash flow has risen at a 50.6% CAGR over the past three years and at a 24.4% CAGR over the past five years.

PLD’s trailing-12-month revenues increased 11% year-over-year. And its trailing-12-month net income and AFFO increased 24.3% and 9.7%, respectively, from their year-ago values. In addition, the company’s levered free cash flow improved 134.8% from the same period last year, while its EBITDA rose 12.5% year-over-year.

Mixed Growth Prospects

Analysts expect PLD’s revenues to improve 6.7% in the about-to-be-reported quarter (ended December 2021), 5.1% in the current quarter, 8.9% in fiscal 2021, and 8.2% in 2022. The consensus EPS estimates indicate a 57.9% rise in its fiscal 2021 fourth quarter (ended December 2021), 13.9% in 2021, and marginally in 2022. However, the Street expects PLD’s EPS to decline 12.2% in the current quarter (ending March 2021) and at a 6.1% rate per annum over the next five years.

Frothy Valuation

In terms of forward non-GAAP P/E, PLD is currently trading at 54.46x, which is 20.6% higher than the 45.16x industry average. Its 38.02 forward Price/FFO multiple is 97.4% higher than the 19.26 industry average. In addition, the stock’s 46.10 forward Price/AFFO ratio is 106% higher than the 22.38 industry average.

Furthermore, PLD’s 28.50 trailing-12-month Price/Rental Revenue multiple is 212% higher than the 9.13 industry average.

Consensus Rating and Price Target Indicate Potential Upside

Of  14 Wall Street analysts that rated PLD, 12 rated it Buy while two rated it Hold. The 12-month median price target of $163.36 indicates a 4.3% potential upside from yesterday’s closing price of $156.57. The price targets range from a low of $139.00 to a high of $180.00.

POWR Ratings Reflect Uncertainty

PLD has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

PLD has a C grade for Quality and Growth. Its 74.2% forward AFFO payout ratio is slightly lower than the 74.23% industry average, in sync with its Quality grade. In addition, analysts expect PLD’s revenues and EPS to dip slightly in the current quarter but improve in fiscal 2022, justifying the Growth grade.

Of the 21 stocks in the REITs – Industrial group, PLD is ranked #4.

In addition to the grades I have highlighted, view PLD ratings for Momentum, Sentiment, Stability, and Value here.

Bottom Line

Given continuing supply chain disruptions amid rising global spending, the demand for logistics warehouses is at an all-time high. According to a new PLD research report, the logistics space in the United States is effectively sold out, with the U.S. net absorption rate doubling year-over-year to an all-time high of 280 million square feet year-to-date (as of Oct.27, 2021). Thus, the demand for logistics real estate is expected to accelerate over the long term, driving PLD’s growth. However, we think investors should wait until PLD’s valuation metrics stabilize before investing in the stock.

How Does Prologis, Inc. (PLD) Stack Up Against its Peers?

While PLD has a C rating in our proprietary rating system, one might want to consider looking at its industry peer Public Storage (PSA), which has a B (Buy) rating.

PLD shares were trading at $156.01 per share on Friday morning, down $0.56 (-0.36%). Year-to-date, PLD has declined -7.34%, versus a -1.27% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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