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Here's How Equinix (EQIX) Looks Just Ahead Of Q4 Earnings

·5 min read

Equinix, Inc. EQIX will report fourth-quarter and 2020 results on Feb 10, 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.

In the last reported quarter, this global connectivity leader delivered a surprise of 7.5% in terms of adjusted FFO per share. The upside primarily stemmed from robust top-line growth, marking the 71st quarter of consecutive growth.

The company has a remarkable streak of beating FFO estimates over the past four quarters. Equinix surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the beat being 5.1%, on average.

Equinix, Inc. Price and EPS Surprise

Equinix, Inc. Price and EPS Surprise
Equinix, Inc. Price and EPS Surprise

Equinix, Inc. price-eps-surprise | Equinix, Inc. Quote

Let’s see how things have shaped up prior to this announcement.

Factors at Play

Data center REITs are expected to have continued to benefit from the growing IT infrastructure market in the fourth quarter. At the onset of the pandemic, remote-working needs forced and accelerated digital transformation. This along with an increasing pace of cloud adoption is expected to have led to increased data center demand.

Moreover, there has been a higher need for digital transformations from federal entities, while new technologies like 5G and augmented reality have been creating additional opportunities for edge deployments and data center operators.

As for Equinix, increasing cloud adoption is expected to have enabled the company to continue to capture on-ramp business and grow its interconnected ecosystems in the October-December quarter.

With 8,500 interconnections added in the third quarter, the company seems well-poised to have capitalized on these trends in the fourth quarter, driving its recurring interconnection revenues. Notably, the Zacks Consensus Estimate for the same is pinned at $270 million, suggesting 14.9% growth from the prior year’s reported figure.

Also, it has a strong digital footprint of International Business Exchanges or IBX data centers across five continents. The geographical diversity is a competitive advantage for the company, allowing it to provide its customers with global interconnectivity. This too has likely enabled the company to bag leases with its customers in the fourth quarter.

Further, its solid cash-generating capacity, owing to a stable base of contracted recurring interconnection and collocation revenues, is expected to have driven fourth-quarter revenue growth. The company has reported 71 consecutive quarters of revenue growth and the trend is likely to have continued in the quarter under review. Overall, the consensus estimate for fourth-quarter 2020 revenues is pinned at $1.56 billion, suggesting a 10.1% year-over-year improvement. Management expects quarterly revenues of $1.55-$1.57 billion.

However, considering the strong growth potential in the data-center market, competition is expected to have increased from other providers. In fact, churn rate — which is the rate at which customers shift to other providers — is high in the Americas. The increased competition is anticipated to have prompted aggressive pricing policies, making Equinix vulnerable to pricing pressure. This is expected to have hindered cabinet pricing and billings.

Also, some of Equinix’s customers are anticipated to have gone out of business due to the pandemic. Resultantly, they are likely to have not paid the cabinet rental charges, thereby, leading to write-downs in EBITDA. Management expects adjusted EBITDA between $685 million and $705 million for fourth-quarter 2020.

Additionally, the company’s activities during the December-end quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for fourth-quarter FFO per share has been unchanged at $5.65 a month. Nonetheless, it indicates 2.5% year-over-year growth.

Similarly, the consensus estimate for 2020 FFO per share is pinned at $24.60, suggesting a year-over-year rise of 7.8% on revenue estimates of $5.99 billion.

Earnings Whispers

Equinix does not have the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of a FFO beat this quarter.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Equinix has an Earnings ESP of 0.00%

Zacks Rank: Equinix 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 a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a beat this quarter:

WashREIT WRE, slated to release quarterly earnings on Feb 11, has an Earnings ESP of +0.59% and a Zacks Rank of 3 at present.

Hudson Pacific Properties, Inc. HPP, slated to release quarterly earnings on Feb 17, currently has an Earnings ESP of +0.76% and a Zacks Rank of 3.

Rexford Industrial Realty, Inc. REXR, slated to release fourth-quarter earnings on Feb 10, has an Earnings ESP of +2.13% and a Zacks Rank of 3 at present.

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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