On Dec 13, 2013, Zacks Investment Research downgraded Iron Mountain (IRM) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Iron Mountain’s not-so-impressive third-quarter results, lowered outlook and uncertainty related to granting of the REIT status were the primary reasons behind the downgrade.
Although the company’s adjusted earnings of 31 cents per share succeeded in beating the Zacks Consensus Estimate by a penny, revenues missed the consensus mark.
Revenues declined marginally (down 1.4%) from the year-ago quarter to $755.6 million. The decline resulted from lower storage rental revenues (down 2.4% year over year), which was offset to a certain extent by a 1.0% year-over-year increase in service revenues.
Adjusted OIBDA margin contracted 80 basis points (bps) on a year-over-year basis to 31.8% due to legal accruals and decline in revenues in the Service segment.
The lackluster result compelled Iron Mountain to revise the full-year 2013 revenue guidance range from $3.00 billion–$3.05 billion to $3.025 billion–$3.050 billion. Currently, the Zacks Consensus Estimate is pegged at $3.035 billion.
Management also revised down its adjusted OIBDA guidance from the earlier outlook of $900.0 million–$925.0 million to $905.0 million–$925.0 million. Iron Mountain now expects earnings in the range of $1.05–$1.14 per share for the full year.
Although the company’s decision to convert to REIT to reduce the tax burden and increase shareholders’ value are positives, costs related to conversion and fluctuations in recycled paper prices are major near-term headwinds.
The Zacks Consensus Estimate for the fourth quarter of 2013 has declined 15.4% (4 cents) to 22 cents over the last 60 days.
The Zacks Consensus Estimate for 2013 decreased 1.8% (2 cents) to $1.09 per share over the last 60 days and that for 2014 dropped 14.1% (18 cents) to $1.10 over the same period.
Other Stocks to Consider
Some better-ranked stocks in the technology sector include Netflix Inc. (NFLX), AOL Inc. (AOL) and Facebook (FB). While Netflix and AOL carry a Zacks Rank #1 (Strong Buy), Facebook holds a Zacks Rank #2 (Buy).