Recently, Evercore ISI made a bold move by downgrading ProLogis (NYSE:PLD) from Outperform to In Line, while also setting a price target of $136.00. This decision was based on various factors, such as the stock’s performance compared to the RMZ index, as well as the absence of significant catalysts in the near future.
Stock Performance and Concerns
Despite ProLogis experiencing a 7.2% increase in its stock price since the investor day in December 2023, there are still concerns raised by Evercore ISI. The firm highlighted that while the stock’s performance has been on par with the index year-to-date, other stocks have been significantly trailing since the beginning of the year.
Market Overview and Strategy
With a focus on the U.S. industrial sector, Evercore ISI noted the normalization of industrial demand post-COVID and a slowdown in GDP growth. ProLogis’s current occupancy rate of 96.8% was also highlighted, although there was a slight decrease from the previous quarter. Additionally, the firm mentioned the increased activity in large warehouse spaces, especially in Southern California, but cautioned about the uncertainty surrounding lease signings.
Looking ahead, Evercore ISI does not anticipate substantial financial contributions from ProLogis’s venture into data centers in 2024. Instead, they foresee this initiative playing a more significant role in enhancing funds from operations growth in 2026 and beyond. The firm remains optimistic about the long-term potential of ProLogis and the industrial sector, projecting high single-digit net operating income growth and around 11% FFO per share growth in the coming years.
Evercore ISI highlighted that ProLogis is currently trading at 27 times the firm’s estimated 2024 adjusted funds from operations (AFFO) and approximately 23 times the 2025 AFFO estimate. The firm expressed skepticism about the possibility of significant stock price appreciation without upward revisions to estimates, which they deem unlikely given the current valuation. This raises questions about whether the industrial sector is still a safe bet for investors moving forward.