Yahoo Finance Is it Wise to Retain Iron Mountain (IRM) Stock in Your Portfolio?
Iron Mountain Incorporated IRM is well-positioned to gain from its recurring revenue business model. Also, its accretive acquisitions and data center business expansion efforts bode well. Its healthy balance sheet position will likely support its growth endeavors. However, competition from industry peers may lead to aggressive pricing pressure and lower margins. High interest rates add to its woes.
Iron Mountain enjoys a steady stream of recurring revenues from its core storage and records management businesses. The company derives the majority of its revenues from fixed periodic (usually earned on a monthly basis) storage rental fees charged to customers based on the volume of their records stored. Its retention rate for its records management business was 92.9% in the first quarter.
In the first quarter of 2024, Iron Mountain’s organic storage rental revenues increased 7.4% from the prior-year quarter. The benefit was driven by revenue management in its Global RIM Business segment, as well as by growth in its Global Data Center Business segment, on the back of lease commencements. We estimate a year-over-year increase of 9.6% in storage rental revenues in 2024. For 2025 and 2026, the metric is expected to witness growth of 8.3% and 8.7%, respectively.
Iron Mountain is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. It is making organic growth efforts, along with expansion projects and developments. Such moves will enable the company to capitalize on strong demand for connectivity, interconnection and colocation space and drive leasing activity.
In the first quarter, the company attained data center revenue growth of 28.2%. It leased 30 megawatts of data center capacity in the quarter. Moreover, in 2023, it leased 124 megawatts of data center capacity.
Iron Mountain had a total liquidity of approximately $2 billion as of Mar 31, 2024, and a weighted average maturity of 5.7 years. With this, it has ample financial flexibility to meet its near-term debt obligations and other capital commitments while pursuing growth opportunities.
Shares of this Zacks Rank #3 (Hold) company have gained 9% over the past three months against the industry’s decline of 5.1%.
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However, as the archiving of original hard-copy documents loses its relevance, paper needs are shrinking at the enterprise level. This, along with shifts in data storage through non-paper-based technologies, is affecting physical storage volume and demand for the handling of records. This is reducing service activity levels and records management volume. In addition, the digitization of records may shift its revenue mix from more predictable storage revenues to service revenues that are more volatile.
The records and information management services industry is highly fragmented, with numerous competitors in North America and worldwide. Although Iron Mountain offers compelling products and has a strong market position, the company faces significant competition. This is likely to result in aggressive pricing and will keep margins under pressure going forward.
A high interest rate environment is a concern for IRM. The company may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. As of Mar 31, 2024, Iron Mountain’s net debt was approximately $12.61 billion. For 2024, our estimate indicates a year-over-year rise of 11.2% in net interest expenses.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Lamar Advertising LAMR and Americold Realty Trust COLD, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for LAMR’s 2024 funds from operation (FFO) per share has moved 3.7% northward over the past two months to $8.03.
The Zacks Consensus Estimate for COLD’s current-year FFO per share has been raised 3.6% over the past month to $1.44.
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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Iron Mountain Incorporated (IRM) : Free Stock Analysis Report
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