Some of Wall Street's top analysts issued their first research reports on Switch Inc (NYSE: SWCH), a technology infrastructure that develops and operates data center facilities. The stock gained more than 20 percent on its first day of trading on Oct. 9.
Goldman Sachs: Premium Business But Premium Valuation
Switch is a premium colocation provider able to differentiate itself from the competition with a portfolio of more than 350 patents, along with four at-scale data center campuses, Sanchez wrote in the initiation note. As such, the company is well positioned to capitalize on favorable industry-wide trends, especially those in data traffic, big data and cloud computing.
Switch also boasts the lowest churn rate among its peers (1.4 percent versus average of 7.0 percent), above average returns (15.0 percent versus average of 11.3 percent) and the highest growth rate (16.2 percent versus average of 12.3 percent).
However, the stock is also trading at 23.1x 2018 EBITDA, which represents a 25 percent premium versus the peer group average of 18.7x. This premium is nevertheless justified given the superior growth profile and a 1.4x PEG ratio which is below the 1.6x peer average.
Credit Suisse: More Power For Less
Credit Suisse's Sami Badri initiated coverage of Switch's stock with an Outperform rating and $22 price target.
Switch's business is particularly attractive because it is "one of the purest ways" for investors to gain exposure to the cloud segment, backed by its large patent portfolio, the analyst said in his research report. But the company's most notable attribute is its ability to distribute "immense amounts of power" to its clients at or below market pricing rates.
Meanwhile, the entire Multi-Tenant Data Center market is projected to grow at a 9 percent compounded annual growth rate over the next five years. But, Switch should be able to grow at twice that rate which implies the company's EBITDA margins will likely come in higher than its peers. Also, the company is projected to accelerate its revenue growth to 21 percent by fiscal 2019, which is notably ahead of its peers.
Finally, a $22 price target is based on a weighted average of three valuation methods:
BMO: Best In Class Player
BMO Capital Markets' Tim Long initiated coverage of Switch's stock with an Outperform rating and $23 price target.
The case for owning Switch is based on the analyst's proprietary analysis to use serve deployments to better predict the colocation opportunity for companies like Switch and its peers. In the period through 2021, Switch's workloads in the cloud will grow at a compounded annual growth rate of 39 percent and drive colocation server rack growth of 17 percent. By comparison, most industry estimates are calling for just a 10 to 15 percent colocation growth.
"We believe that Switch's patented data center designs enable better TCO drive the lower churn rates," the analyst wrote. "Switch has achieved a Tier IV data center classification, which, coupled with the ability to offer denser deployments and the CORE telecom purchasing cooperative, delivers significant savings to the customer and increases customer stickiness.
Finally, Switch has a path toward realizing $3 billion in revenue by simply filling its existing data centers and then populating those it plans to build.
In addition to the three initiations above, Benzinga earlier covered Citi's initiation on the stock. Citi holds a Neutral rating and $20 price target on Switch.
Latest Ratings for SWCH
|Oct 2017||Goldman Sachs||Initiates Coverage On||Neutral|
|Oct 2017||JP Morgan||Initiates Coverage On||Overweight|
|Oct 2017||Credit Suisse||Initiates Coverage On||Outperform|
View More Analyst Ratings for SWCH
View the Latest Analyst Ratings
See more from Benzinga
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.