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Equinix Announces Pricing of Senior Notes Offering Due 2026

Zacks Equity Research

Equinix Inc. EQIX has priced its previously announced public offering of €1 billion aggregate principal amount of senior notes. The note carries an interest rate of 2.875% semi-annually. The notes will mature on Feb 1, 2026, subject to customary closing conditions.  The company has filed for registration under the Securities Act of 1933.

JPMorgan Chase & Co. JPM, Citigroup C, BofA Merrill Lynch, MUFG and RBC Capital Markets are acting as joint book-running managers for the purpose. The offering is made under the company’s shelf registration statement.

Proceeds from the Offering

Equinix, a global data center service provider,intends to use the net proceeds (approximately €986.7 million) from the planned offering, along with nearly $10 million of available cash, for repaying existing €995 million term loan due 2024.

Notably, this will be the company’s third senior notes offering this year. Prior to this, Equinix had commenced offerings worth €1.0 billion in September and $1.25 billion in March.

Factors in Favor of Equinix

Borrowing costs continue to be low, enabling companies to obtain easy financing. With the U.S. treasuries offering low rates, corporate bonds and borrowings from banks are now witnessing elevated demand. We believe these notes will provide financial flexibility to the company and propel long-term growth as well.

Last quarter (third-quarter 2017), Equinix reported solid year-over-year improvement in revenues as well as earnings. This can primarily be attributed to strong booking activity, the company's global platform, continued enterprise momentum and synergies from acquisition.

Equinix continues to witness strong demand for cloud services from corporations interested in enhancing their networks. The company observed revenue growth across all three geographic regions and verticals. Robust growth in the global Colocation and Interconnection platforms provided a boost to the top line.

The company has made 13 new expansion facilities across all three regions amounting to $615 million. Acquisitions have remained one of the key growth strategies for Equinix. Worldwide, the company owns 190 IBX data centers across 48 markets and 24 countries.

It is worth mentioning that, Equinix exited third-quarter 2017 with $1.629 billion in cash, cash equivalents and short-term investments. The company's total debt principal outstanding was $10.12 billion as on Sep 30, 2017. Consequently, raising funds through this public offering will be beneficial for the company.

Share Price

The company’s share price movement has been quite favorable. In the past year, its shares have returned 33.9%, while the industry recorded growth of 15.3%.

Bottom Line

Expansion in important markets and consolidation of facilities in existing ones are important components of Equinix's core strategy. We believe that the company’s focus on offering upgraded technology to attract clients will bolster revenues and profitability, going forward.

However, intensifying competition from established Internet data center operators such as AT&T T and CenturyLink Inc. may affect product pricing, consequently denting the margins.

Currently, Equinix carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector are NVIDIA Corporation NVDA and DXC Technology Company. DXC, each sporting a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

NVIDIA and DXC have a long-term expected growth rate of 11.2% and 10.5%, respectively.

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