Prologis Inc (PLD, Financial) recorded a daily loss of -5.26% and a 3-month loss of -4.35%, with an Earnings Per Share (EPS) (EPS) of 3.8. Despite these figures, the question remains: Is Prologis modestly undervalued? This article provides an in-depth valuation analysis to answer this question, offering valuable insights into the intrinsic value and financial performance of Prologis.
Company Overview
Prologis Inc, formed from the merger of AMB Property and Prologis Trust in June 2011, develops, acquires, and operates approximately 1.2 billion square feet of high-quality industrial and logistics facilities worldwide. With a strategic capital business segment managing around $60 billion of third-party assets under management (AUM), Prologis operates as a real estate investment trust across four global divisions: Americas, Europe, Asia, and other Americas. With a current price of $114.55 per share and a GF Value of $149.84, Prologis appears to be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It's calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides a visual representation of the stock's fair trading value. If the stock price significantly deviates from the GF Value Line, it indicates potential overvaluation or undervaluation, thus influencing future returns.
Prologis's stock, currently priced at $114.55 per share, appears to be modestly undervalued based on the GF Value. This suggests that its long-term return is likely to be higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could lead to permanent capital loss. Therefore, it's crucial to review a company's financial strength before investing. Prologis has a cash-to-debt ratio of 0.02, ranking lower than 76.45% of 726 companies in the REITs industry. Based on this, GuruFocus ranks Prologis's financial strength as 5 out of 10, indicating a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable offer less risk to investors. Prologis, with consistent profitability over the past 10 years and a revenue of $7.70 billion in the past twelve months, boasts an operating margin of 41.69%. This ranks lower than 63.7% of 686 companies in the REITs industry. However, the overall profitability of Prologis is ranked 8 out of 10, indicating strong profitability.
Growth is a critical factor in company valuation. Prologis has an average annual revenue growth of 13.1%, ranking better than 87.99% of 633 companies in the REITs industry. The 3-year average EBITDA growth is 14.2%, ranking better than 77.34% of 534 companies in the REITs industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) can help determine its profitability. The ROIC measures how effectively a company generates cash flow relative to its invested capital. The WACC is the average rate a company is expected to pay its security holders to finance its assets. When the ROIC is higher than the WACC, it suggests the company is creating value for shareholders. For the past 12 months, Prologis's ROIC is 3.97, and its WACC is 9.36.
Conclusion
In summary, Prologis appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 77.34% of 534 companies in the REITs industry. To learn more about Prologis stock, you can check out its 30-Year Financials here.
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