Data Storage Centers Undervalued Relative To Growth Prospects According To Stifel Nicolaus

• On 8:52 am EDT, Tuesday October 6, 2009

67 WALL STREET, New York - October 6, 2009 - The Wall Street Transcript has recently published its Data Hosting and Data Storage Services Report offering a timely review of the sector to serious investors and industry executives. This 37 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Capital Investment Growth -- Cloud Computing -- Per-per-Port Trends -- Broadband Network Services -- Content Delivery Networks -- Broadband Network Services -- Backbone Services -- Utilization Rates -- CDN Business Model -- Co-Location Business Model -- Mergers and Acquisitions

Companies include: ATT (ATT); RackSpace (RAX); Level 3 (LVLT); Savvis, Inc. (SVVS); Verizon Communications (VZN); Cisco Systems (CSCO); Limelight Networks (LLNW); Internap Network Services (INAP); Switch and Data Facilities (SDXC); Digital Realty Trust (DLR);Voltaire, Inc. (VOLT); Avocent (AVCT); Emulex (ELX)

In the following brief excerpt from just one of the 8 interviews in the 37 page report, industry expert Todd Weller discusses the outlook for the Data Storage and Services sector and the upside for investors.

Todd C. Weller, CFA, is a Managing Director of Stifel, Nicolaus & Company, Inc. He joined the firm's research team in connection with Stifel's acquisition of Legg Mason's capital markets group in December 2005. Mr. Weller covers the software and Internet infrastructure sector with a current focus on data center/hosting, healthcare information technology, infrastructure software and security. Prior to joining Legg Mason in August 1998, he was an Associate Analyst at Prudential Securities, following companies in the Internet and electronic commerce sector. Prior to that, he was a Research Assistant at BT Alex. Brown, Inc. Mr. Weller was ranked first for earnings accuracy and third for stock picking in the software industry, and second for stock picking in the healthcare technology industry by Financial Times/StarMine in 2009. He was ranked second for earnings accuracy in the software industry by Financial Times/StarMine in 2008. He has a B.A. in economics with certificates in finance and management science from the University of Maryland, Baltimore County, and an MBA from the University of Maryland at College Park. He is a CFA charterholder.

TWST: How are stock prices holding up now? Do you see these companies being fairly valued?

Mr. Weller: I think there is still upside. I think these stocks got way oversold because of everything I talked about earlier. There was just a lack of appetite for risk, period, and then you add on the high leverage, the negative - those are characteristics that were just not attractive to people. And one thing that is true, too, is that there is still a fresh memory of the past, of the issues this space faced back in 2001. Exodus went bankrupt. These stocks were disastrous. It was a nightmare, and there are a lot of people who still remember that. And so I think that hurts the group, too, but I think what people are starting to feel more comfortable with is that businesses are different today. The customer base is higher quality, the demand is real, and you don't really have the over-capacity situation you did back then or the high-leverage levels. I think those are key differences. In terms of what's going to drive the stocks from here, I think for an Equinix and Switch, they've got to continue to show that they can put up 20% to 25% growth rates and deliver on the EBITDA side, and I think people will get more comfortable with these models. Looking at past multiples, for Equinix we just raised our target to $100, which is still meaningful upside from here. So I think there is more room to grow. Rackspace is a little tougher, you don't have a lot of history. And it's a little bit of a different model, so it's not exactly right to compare it to these vendors. But we think that as the SMB market improves from a macro perspective, that that will drive an improvement in growth in Rackspace. Right now we're modeling a 15% revenue growth forecast, but we think those could ultimately return to 20% to 25%, and so Rackspace has the potential to get on the screens of more growth investors. It's also a name that still has a relatively low institutional ownership. When they did that auction IPO, they ended up having a pretty big retail investor base. And so Rackspace over the last nine months has been really aggressive at getting out in front of institutions, telling the story. One of the things that's a little bit interesting is that there were some clear overhangs or concerns over this group if you go back to the second half of 2008 and early 2009, concerns that you were going to have issues with the businesses, that growth was going to slow significantly, that churn was going to spike. And just over the last quarter, it didn't seem that there were big issues or overhangs out there.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 37 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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