Equinix Inc.’s EQIX ratings have been upgraded by Moody’s Investors Service — the rating division of Moody’s Corporation MCO. The rating agency has maintained its stable outlook.
Specifically, Equinix’s corporate family rating (“CFR”) has been bumped up a notch to Ba2 from Ba3, while senior unsecured ratings have been upgraded by two notches to Ba2 from B1. Also, the company’s probability of default rating has progressed to Ba2-PD from Ba3-PD.
Key Rating Drivers
Moody's expects the company’s financial performance to improve on the back of steady contractual revenue growth. This is also expected to improve its debt credit metrics over the next 12 to 18 months.
Specifically, the company raised $1.2 billion by issuing shares of its common stock and has another $750 million at its disposal from an at-the-market (ATM) stock offering program. This indicates its commitment to a disciplined debt-equity funding approach for funding its high capital spending and dividend payments. Further, a more consistent capital sourcing policy will likely reduce leverage.
The credit action was also backed by Equinix’s quality and scale of data center portfolio that has a global presence. The company is a preeminent global independent operator of data centers and offers carrier-neutral data-center and interconnection services to enterprises, content distributors and global Internet companies.
Additionally, strategic real estate holdings in key communications hubs and the favorable growth trends for data center services are positives. Nonetheless, Moody’s noted that significant industry risks, stiff competition, high dependence on debt and high capital-intensive needs remain concerns. Additionally, negative cash flows due to high dividend payments is also an offsetting factor.
The outlook reaffirmation commensurate Moody's view of the company’s improved credit profile through significant improvement in leverage levels. In fact, it believes that Equinix will reduce leverage volatility and steady approach to a leverage level of 4.5x by year-end 2020.
This upgraded rating boosts Equinix’s creditworthiness in the market and is likely to enhance investor confidence in the stock. In fact, such moves provide companies an opportunity to enjoy favorable costs on debts and solid access to capital, and are therefore encouraging.
Over the past three months, shares of this Zacks Rank #2 (Buy) company have rallied 28.8% compared with the industry’s growth of 28.2%.
Other Stocks to Consider
Investors can also consider some other top-ranked stocks from the same space like Terreno Realty Corp. TRNO and Boston Properties, Inc. BXP, carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Terreno Realty’s funds from operations (FFO) per share estimates for first-quarter 2019 have remained unchanged at $1.42 over the past month. Further, it has a long-term growth rate of 8.40%.
Boston Properties’ FFO per share estimates for the ongoing year have been revised marginally north to $6.92 in 30 days’ time. Additionally, it has a long-term growth rate of 6.20%.
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