Duke Realty Corporation (NYSE:DRE) shares are up more than 9.60% this year and recently increased 0.52% or $0.15 to settle at $29.11. Prologis, Inc. (NYSE:PLD), on the other hand, is up 27.05% year to date as of 11/10/2017. It currently trades at $67.07 and has returned 0.80% during the past week.
Duke Realty Corporation (NYSE:DRE) and Prologis, Inc. (NYSE:PLD) are the two most active stocks in the REIT – Industrial industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect DRE to grow earnings at a 6.00% annual rate over the next 5 years. Comparatively, PLD is expected to grow at a 10.60% annual rate. All else equal, PLD’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 118.95% for Prologis, Inc. (PLD). DRE’s ROI is 6.90% while PLD has a ROI of 2.40%. The interpretation is that DRE’s business generates a higher return on investment than PLD’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. DRE’s free cash flow (“FCF”) per share for the trailing twelve months was +0.13. Comparatively, PLD’s free cash flow per share was +0.56. On a percent-of-sales basis, DRE’s free cash flow was 0.01% while PLD converted 11.76% of its revenues into cash flow. This means that, for a given level of sales, PLD is able to generate more free cash flow for investors.
DRE’s debt-to-equity ratio is 0.45 versus a D/E of 0.63 for PLD. PLD is therefore the more solvent of the two companies, and has lower financial risk.
DRE trades at a forward P/E of 80.41, a P/B of 2.20, and a P/S of 13.11, compared to a forward P/E of 42.48, a P/B of 2.30, and a P/S of 13.68 for PLD. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. DRE is currently priced at a -2.97% to its one-year price target of 30.00. Comparatively, PLD is 333.83% relative to its price target of 15.46. This suggests that DRE is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.50 for DRE and 2.90 for PLD, which implies that analysts are more bullish on the outlook for PLD.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. DRE has a beta of 0.90 and PLD’s beta is 0.94. DRE’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. DRE has a short ratio of 3.24 compared to a short interest of 3.04 for PLD. This implies that the market is currently less bearish on the outlook for PLD.
Duke Realty Corporation (NYSE:DRE) beats Prologis, Inc. (NYSE:PLD) on a total of 8 of the 14 factors compared between the two stocks. DRE generates a higher return on investment, higher liquidity and has lower financial risk. In terms of valuation, DRE is the cheaper of the two stocks on book value and sales basis, DRE is more undervalued relative to its price target. Finally, NYRT has better sentiment signals based on short interest.