REIT Stocks

Prologis Inc Valuation – February 2017 $PLD

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Prologis Inc (PLD) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Prologis, Inc. is engaged in logistics real estate business, focused on markets across the Americas, Europe and Asia. The Company owns or has investments in, on a basis or through co-investment ventures, properties and development projects in over 20 countries. Its segments include Real Estate Operations and Strategic Capital. It leases distribution facilities to over 5,200 customers across two categories, which include business-to-business and retail/online fulfillment. The Real Estate Operations segment consists of Rental Operations and Capital Deployment. The Strategic Capital segment represents the management of unconsolidated co-investment ventures. For business-to-business enterprises, its buildings serve a range of sectors, including automotive, transportation, pharmaceuticals and general consumer goods. In the area of retail/online fulfillment, its logistics facilities foster the seamless flow of goods around the world.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of PLD – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $26,436,297,594 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.56 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 101.05% Pass
6. Moderate PEmg Ratio PEmg < 20 46.32 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.85 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.56 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -37.90 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $1.08
MG Growth Estimate 15.00%
MG Value $41.53
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $15.64
MG Value based on 0% Growth $9.17
Market Implied Growth Rate 18.91%
Current Price $49.97
% of Intrinsic Value 120.33%

Prologis Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-1.47 in 2012 to an estimated $1.08 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 18.91% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Prologis Inc revealed the company was trading above its Graham Number of $24.53. The company pays a dividend of $1.66 per share, for a yield of 3.3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 46.33, which was above the industry average of 31.91. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-28.72.

Prologis Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$28.72
Graham Number $24.53
PEmg 46.33
Current Ratio 0.56
PB Ratio 1.85
Current Dividend $1.66
Dividend Yield 3.32%
Number of Consecutive Years of Dividend Growth 3

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $375,120,000
Total Current Liabilities $672,111,000
Long-Term Debt $11,256,997,000
Total Assets $30,888,209,000
Intangible Assets $0
Total Liabilities $16,089,042,000
Shares Outstanding (Diluted Average) 547,200,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.96
Dec2015 $1.64
Dec2014 $1.24
Dec2013 $0.64
Dec2012 -$0.18
Dec2011 -$0.51
Dec2010 -$5.90
Dec2009 -$0.37
Dec2008 -$0.68
Dec2007 $2.96
Dec2006 $2.30
Dec2005 $2.85
Dec2004 $1.39
Dec2003 $1.41
Dec2002 $1.33
Dec2001 $1.41
Dec2000 $1.35
Dec1999 $1.94
Dec1998 $1.26
Dec1997 $1.38

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.08
Dec2015 $0.95
Dec2014 $0.09
Dec2013 -$0.75
Dec2012 -$1.47
Dec2011 -$1.71
Dec2010 -$1.65
Dec2009 $0.78
Dec2008 $1.50
Dec2007 $2.45
Dec2006 $2.08
Dec2005 $1.87
Dec2004 $1.38
Dec2003 $1.42
Dec2002 $1.43
Dec2001 $1.48
Dec2000 $1.40

Recommended Reading:

Other ModernGraham posts about the company

Prologis Inc. Valuation – October 2015 Update $PLD
28 Companies in the Spotlight This Week – 11/1/14
Prologis Inc. Annual Valuation – 2014 $PLD

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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