On Wednesday, Raymond (NS:RYMD) James adjusted its stance on ProLogis (NYSE: NYSE:PLD), downgrading the stock from a Strong Buy to an Outperform rating. Accompanying this change, the firm also reduced the price target to $125 from the previous target of $130. The industrial REIT giant, currently valued at $106 billion, trades at a P/E ratio of 34.15x, which according to InvestingPro analysis, appears relatively high compared to its near-term earnings growth potential.
The adjustment comes as the Raymond James analyst believes that ProLogis's risk/reward balance has shifted, making it less compelling as a top-tier investment option. However, the firm maintains a positive outlook on the company, citing its attractive valuation and solid projected growth in adjusted funds from operations (AFFO).
According to the analyst, ProLogis is expected to see a compound annual growth rate (CAGR) of 9% from 2024 to 2026. The company maintains a solid 3.39% dividend yield and has raised its dividend for 11 consecutive years, as highlighted in InvestingPro's analysis (which includes 8 additional key insights about PLD).
The analyst remains optimistic about ProLogis's long-term prospects, highlighting the potential benefits from its strategic capital platform. This unique aspect of the company is anticipated to contribute to both financial gains and improved market sentiment. ProLogis maintains a "GOOD" Financial Health Score of 2.74 according to comprehensive InvestingPro metrics, despite analysts anticipating a revenue decline in the current year.
Despite the downgrade, Raymond James points out that ProLogis continues to be one of the most underweight names among real estate investment trust (REIT)-dedicated investors.
The firm anticipates that as the market's 'bottoming process' progresses and net operating income (NOI) growth becomes more apparent, investor exposure to ProLogis will likely increase to a market weight or possibly even an overweight position.
In other recent news, ProLogis reported a core funds from operations (FFO) of $1.45 per share in its Q3 2024 earnings call, slightly surpassing market expectations.
The industrial real estate company maintained a strong period-ending occupancy of 96.2%. Despite a challenging global market environment, significant rent changes were observed, with net effective rent change at 68% and cash rent change at 44%. However, global market rents decreased by approximately 3%.
Goldman Sachs has downgraded ProLogis' stock from a Buy rating to Neutral, reducing the price target to $132 from the previous $142. This decision follows a revised financial model and expectations for the company, suggesting a prolonged period of slower market rent growth and a delay in development starts.
The downgrade reflects concerns over macroeconomic uncertainty, including fluctuating interest rates, geopolitical instability, and environmental disasters, which have stalled tenant decision-making and leasing activities.
ProLogis has adjusted its future guidance, tightening projections for average occupancy and same-store growth, while reducing development starts guidance due to slow market decision-making. However, the company increased its acquisition guidance, signaling confidence in strategic growth opportunities. The firm raised $4.6 billion in new debt and initiated over $0.5 billion in development projects.
Despite near-term challenges like soft rent growth and increased vacancies, ProLogis management expressed confidence in long-term growth prospects, supported by low overall vacancies, reduced supply deliveries, and a significant lease mark-to-market potential of 34%.
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