Great Stocks

[fung_derf]

Not saying I agree or disagree, but.....

Prologis Inc (PLD $128.14: Downgraded to In Line from Outperform)
Shuffling Some Ratings
Analyst Steve Sakwa
Price Target $44.00
While PLD has very modestly outpaced the RMZ since the start of the year, a number of other stocks have materially lagged the index since January 1st and therefore the stock’s lower relative ranking along with limited upside to estimates, in our view, has prompted us to downgrade the stock from Outperform to In-Line. While YTD performance is in line with the index, since the investor day on Dec 13th, where management highlighted the drivers for long term growth including the opportunities on data centers, the stock is up 7.2% while the REIT sector is up 3.4%. While industrial demand continues to normalize across the US post COVID along with slowing GDP growth, PLD’s occupancy rate stood at 96.8% so far in Q1 vs 97.1% in 4Q but we don’t see any major catalysts near term for the stock even though our recent channel checks suggest that large e-commerce players are back in the market taking space. For example, there’s been more dialogue with customers on larger spaces (> 500ksf) as overall activity on larger boxes has picked up especially in S CA including the Inland Empire although the timing of lease signings remains uncertain. In addition, we don’t expect the company’s push into the data center arena to yield much upside in ’24 as this new growth initiative is more likely to grow FFO growth higher in ’26 and beyond. While occupancy at PLD is likely to be the lowest in Q1 vs. its full year target of 97%, we continue to like the long-term prospects of the company and the industrial sector especially as we continue to see the supply pipeline shrink. On the plus side, we expect PLD to deliver high single digit NOI growth and ~11% FFO/sh growth (ex-promotes) over the next several years similar to what was mentioned at the investor day given the significant mark to market opportunities that exist in the portfolio even with our assumption of market rent growth of -5% and -1% in ’24 and ’25, respectively. With that said, PLD is trading at 27x our projected ’24 AFFO estimate and roughly 23x our ’25 AFFO estimate so it’s hard to argue for further multiple expansion off the current levels and therefore meaningful upside in the stock price would need to come from upward estimate revisions.