On Monday, Evercore ISI adjusted its stance on ProLogis (NYSE:PLD), downgrading the stock from Outperform to In Line and setting a price target of $136.00. The firm cited a combination of factors, including the stock's performance relative to the RMZ index since the beginning of the year and a lack of major near-term catalysts, as reasons for the downgrade.
Since the investor day on December 13, 2023, ProLogis has seen a 7.2% increase in its stock price, compared to a 3.4% increase in the real estate investment trust (REIT) sector. Despite this, Evercore ISI points out that the stock's year-to-date performance has only kept pace with the index, and other stocks have materially lagged behind since January 1st.
The report acknowledges the normalization of industrial demand in the U.S. and a slowdown in GDP growth post-COVID. ProLogis's occupancy rate was noted at 96.8% in the first quarter of 2024, a slight decrease from 97.1% in the fourth quarter of 2023. The firm also mentioned increased activity in large warehouse spaces, particularly in Southern California, but indicated that the timing of lease signings is uncertain.
Evercore ISI does not anticipate significant contributions from ProLogis's venture into data centers to the company's financials in 2024. Instead, it expects this initiative to enhance funds from operations (FFO) growth in 2026 and beyond. The firm remains optimistic about the long-term prospects of ProLogis and the industrial sector, noting potential for high single-digit net operating income growth and approximately 11% FFO per share growth, excluding promotes, over the next several years.
Concluding its assessment, Evercore ISI pointed out that ProLogis is currently trading at 27 times the firm's projected 2024 adjusted funds from operations (AFFO) estimate and around 23 times the 2025 AFFO estimate. The firm suggests that significant stock price appreciation would require upward revisions to estimates, which they find unlikely at the current valuation.
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