Yahoo Finance Equinix's (EQIX) Shares Gain 10.7% in Past 6 Months: Here's Why
Shares of Equinix, Inc. EQIX, carrying a Zacks Rank #3 (Hold) currently, have gained 10.7% in the past six months against the real estate market’s fall of 7.6%.
Earlier this month, this global digital infrastructure company reported first-quarter 2023 adjusted funds from operations (AFFO) per share of $8.59, surpassing the Zacks Consensus Estimate of $7.92. The figure grew 20% from the prior-year quarter. Its quarterly results reflected steady growth in colocation and inter-connection revenues.
Moreover, management raised its guidance for 2023. AFFO per share is now estimated between $31.15 and $32.00, up from the prior range of $30.79-$31.64. The Zacks Consensus Estimate for the same is pegged at $31.32, which lies within the guided range.
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Let us now decipher the factors behind the surge in the stock price.
Data center infrastructure demand has remained robust amid growth in cloud computing, the Internet of Things and Big Data, and elevated demand for third-party IT infrastructure. Moreover, the growth in the AI, autonomous vehicles and virtual/augmented reality markets has created a solid base for data centers.
Amid this, Equinix’s geographically diverse portfolio of International Business Exchanges (IBX) data centers is expected to have benefited from enterprises’ growing reliance on technology and acceleration in digital transformation strategies.
Moreover, the company has a recurring revenue model, which comprises colocation, related interconnection and managed IT infrastructure services. This ensures a stable cashflow generation for the company and aids top-line growth. In the first quarter, recurring revenues were $1.89 billion, rising 15.1% from the year-ago quarter.
Also, revenues from the Americas, EMEA and the Asia Pacific rose 10.2%, 25.6% and 10.7% to $882.4 million, $691.2 million and $424.6 million, respectively.
To meet the global need for data centers, Equinix has been amplifying its global footprint by expanding its IBX data centers.
This April, the company revealed plans for a new state-of-the-art IBX data center in Montreal, a major innovation hub with one of the largest concentrations of technology workforces in Canada, with an investment of $50 million.
The new MT2 data center, slated to open in the second half of 2023, will enhance EQIX’s footprint in Canada to 16 high-quality IBX data centers coast to coast and add more than 37,000 square feet of colocation space. In addition, it will provide customers with a digital on-ramp to the company’s global platform of more than 245 data centers.
Further, in February 2023, EQIX unveiled that it is building its second data center in Barcelona, a vital subsea hub. The new BA2 data center will serve as a strategic connection point for data communications between Europe, Africa and the Middle East, making EQIX’s move seem prudent.
In the same month, it announced the addition of five new long-term Power Purchase Agreements in Spain, aggregating 225 megawatts (MW). The move considerably increased the company’s backing of renewable power projects.
Equinix’s robust balance-sheet position has enabled it to capitalize on long-term growth opportunities. It had $6.6 billion of liquidity as of Mar 31, 2023. As of the first-quarter end, the company enjoyed investment-grade credit ratings of Baa2 from Moody’s, BBB rating from S&P Global Ratings and BBB+ from Fitch Ratings, rendering it favorable access to the debt market.
Solid dividends are a huge attraction for REIT investors, and EQIX has remained committed to that, even during the pandemic. In February 2023, concurrent with the fourth-quarter 2022 earnings release, Equinix’s board of directors announced a 10% sequential hike in its quarterly cash dividend from $3.10 per share to $3.41. It increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 8.17%. Such efforts boost investors’ confidence in the stock.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Iron Mountain IRM, Host Hotels & Resorts HST and Stag Industrial STAG, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Iron Mountain’s 2023 FFO per share is pegged at $3.96.
The Zacks Consensus Estimate for Host Hotels’ current-year FFO per share is pegged at $1.89.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share is pegged at $2.25.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.
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