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Factors to Impact Digital Realty (DLR) This Earnings Season

·4 min read

Digital Realty Trust DLR will report first-quarter 2022 earnings on Apr 28 after market close. The company’s quarterly results are expected to reflect year-over-year growth in revenues and funds from operations (FFO) per share.

This data center real estate investment trust (REIT) reported a negative surprise of 0.60% in terms of FFO per share in the previous quarter.

Over the last four quarters, Digital Realty outpaced the Zacks Consensus Estimate on two occasions and missed the same in two quarters, the average beat being 0.94%. This is depicted in the chart below:

Digital Realty Trust, Inc. Price and EPS Surprise

Digital Realty Trust, Inc. Price and EPS Surprise
Digital Realty Trust, Inc. Price and EPS Surprise

Digital Realty Trust, Inc. price-eps-surprise | Digital Realty Trust, Inc. Quote

Let’s see how things have shaped up for DLR before this announcement.

Factors to Consider

High growth in cloud computing, the Internet of Things and big data and elevated demand for the third-party IT infrastructure are spurring demand for the data center infrastructure. Also, the growth in AI, autonomous vehicles and virtual/augmented reality markets has been creating a robust base for data centers. Moreover, the heightening reliance on technology in the pandemic era continues to benefit data centers.

Amid these, demand for data center space is likely to have been healthy during the first quarter of 2022. Being infrastructure providers for this rapidly growing digital economy, data center landlords, including Digital Realty, are expected to have capitalized on the favorable environment.

Digital Realty also has a high-quality diversified customer base comprising tenants from the cloud, content, IT, network, other enterprises and financial industries. The majority of its tenants are investment-grade rated and numerous customers use multiple locations across the portfolio. This is likely to have provided the company with cash-flow stability during the period in discussion, thereby driving the top line.

The Zacks Consensus Estimate for quarterly rental revenues is pegged at $793 million, up from $763 million in the prior quarter and $755 million in the prior year quarter. The consensus estimate for total quarterly revenues is pegged at $1.13 billion, indicating a 3.8% year-over-year jump.

Digital Realty has been strengthening its portfolio with expansions and developments. DLR also announced the official opening of its first data center in South Korea and the first carrier-neutral facility in the country.

Before the first-quarter earnings release, the company’s activities were adequate to gain analysts’ confidence. The Zacks Consensus Estimate for first-quarter FFO per share has been revised 3.7% upward to $1.68 in a month. It also indicates year-over-year growth of 0.6%.

However, Digital Realty competes with several data center developers, owners and operators, many of whom enjoy the ownership of similar assets at similar locations as the company. Amid the solid growth potential in the data center market, the competition from other providers is expected to have intensified in the March-end quarter, prompting aggressive pricing policies. This might have curbed Digital Realty’s growth.

Here Is What Our Quantitative Model Predicts:

Digital Realty does not have the right combination of two key elements — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an FFO beat. However, that is not the case here.

Earnings ESP: Digital Realty has an Earnings ESP of -5.73%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Digital Realty currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

Here are some stocks like Public Storage PSA, Host Hotels & Resorts, Inc. HST and Cousins Properties Incorporated CUZ that are worth considering from the REIT sector as our model shows that these have the right combination of elements to deliver a surprise this reporting cycle:

Public Storage, slated to release first-quarter earnings on May 3, has an Earnings ESP of +0.50% and a Zacks Rank of 2 (Buy) at present.

Host Hotels & Resorts, scheduled to report quarterly figures on May 4, has an Earnings ESP of +4.07% and a Zacks Rank of 1 currently.

Cousins Properties Incorporated, slated to report quarterly numbers on Apr 28, has an Earnings ESP of +0.50% and carries a Zacks Rank of 3.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Host Hotels & Resorts, Inc. (HST) : Free Stock Analysis Report

Public Storage (PSA) : Free Stock Analysis Report

Cousins Properties Incorporated (CUZ) : Free Stock Analysis Report

Digital Realty Trust, Inc. (DLR) : Free Stock Analysis Report

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