We've been asking ourselves recently if the market has placed a fair valuation on Prologis. Let's dive into some of the fundamental values of this large-cap Real Estate company to determine if there might be an opportunity here for value-minded investors.
Prologis's Valuation Is in Line With Its Sector Averages:
Prologis, Inc. is the global leader in logistics real estate with a focus on high-barrier, high-growth markets. The company belongs to the Real Estate sector, which has an average price to earnings (P/E) ratio of 24.81 and an average price to book (P/B) ratio of 2.24. In contrast, Prologis has a trailing 12 month P/E ratio of 38.0 and a P/B ratio of 2.13.
When we divide Prologis's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -7.19. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
Exceptional Profitability Overshadowed by Excessive Leverage:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $3,331 | $4,439 | $4,759 | $5,974 |
| Operating Margins | 29.8% | 31.6% | 34.0% | 38.2% |
| Net Margins | 47.23% | 33.38% | 61.77% | 56.33% |
| Net Income (MM) | $1,573 | $1,482 | $2,940 | $3,365 |
| Net Interest Expense (MM) | -$216 | -$313 | -$265 | -$309 |
| Depreciation & Amort. (MM) | -$1,140 | -$1,562 | -$1,578 | -$1,813 |
| Earnings Per Share | $2.46 | $2.01 | $3.94 | $3.21 |
| EPS Growth | n/a | -18.29% | 96.02% | -18.53% |
| Diluted Shares (MM) | 655 | 754 | 765 | 923 |
| Free Cash Flow (MM) | $2,264 | $2,937 | $2,996 | $4,126 |
| Net Current Assets (MM) | -$11,799 | -$17,553 | -$18,771 | -$29,225 |
| Current Ratio | 1.92 | 1.36 | 0.96 | 0.13 |
| Long Term Debt (MM) | $11,722 | $16,677 | $17,224 | $23,876 |
| Net Debt / EBITDA | 3.6 | 4.66 | 3.46 | 4.7 |
Prologis has growing revenues and no capital expenditures and strong margins with a positive growth rate. Additionally, the company's financial statements display a pattern of improving cash flows and positive EPS growth. However, the firm has a highly leveraged balance sheet.
