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Here's What Makes Equinix (EQIX) a Promising Investment Bet

Zacks Equity Research

Adding shares of Equinix, Inc. EQIX to your portfolio now might be a wise decision, given the company’s high-quality and large-scale of data-center portfolio which enjoys 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 communication hubs and favorable growth trends for data-center services are positives. 

Moreover, the company has been witnessing upward estimate revisions for the 2019 funds from operations (FFO) per share, reflecting analysts' optimism about its prospects. Over the past week, the Zacks Consensus Estimate for 2019 FFO per share has marginally moved north.

The company's price performance also seems impressive. In fact, this Zacks Rank #2 (Buy) stock has gained around 30.6% over the past three months, outperforming 13.4% growth recorded by the real estate market.


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

Why the Stock is an Attractive Choice

Revenue Strength: Equinix continues to make steady progress toward improving its top line. The year-over-year improvement in fourth-quarter 2018 revenues marked the 64th quarter of consecutive revenue growth for the company. In fact, as majority of the cost structures have a fixed nature, every unit growth in revenues would result in lower expenses as a percentage of total revenues. This enables the company’s business model to generate a significant portion of recurring revenues. Also, Equinix’s projected sales growth (F1/F0) of 9.48% (the industry average being 0.64%) indicates constant upward momentum in revenues.

Encouraging FFO picture: Equinix witnessed FFO per share growth of 20.17%, over the last three to five years, higher than the industry average of 5.01%. In addition, this uptrend is likely to continue in the near term as reflected by its projected FFO growth rate of 9.67% for 2019 (higher than the industry average of 0.2%). This outlook highlights robust demand for the company’s data centers.

Promising Industry Tailwinds: With growing popularity of cloud computing, Internet of Things and big data, as well as the use of third-party IT infrastructure by several companies, data-center REITs are experiencing a boom. Additionally, the estimated growth rates for the artificial intelligence, autonomous vehicle and virtual/augmented reality markets will remain robust, over the next five to eight years. These factors will likely significantly propel growth of data-center REITs, such as Digital Realty Trust DLR, CoreSite Realty Corp. COR, CyrusOne Inc. CONE, Equinix and others. 

Acquisitions to Drive Inorganic Growth: To leverage on the strengthening industry fundamentals, Equinix has made several moves to expand its data-center capacity in many of its key markets since 2003. This January, it announced expansions in new markets — Hamburg and Seoul. In the same month, it announced a $85-million investment to build its fourth International Business Exchange data center in Singapore. Further, the company intends to strengthen its position in existing markets of Chicago, Dallas, Hong Kong, Melbourne, New York, Paris, Sao Paulo, Singapore, Tokyo and Zurich, through 10 new expansions. These buyouts will boost Equinix’s capacity in strategic global markets and drive inorganic growth over the long term. 

Favorable Growth Score: Moreover, the stock has a Growth Score of B. Our research shows that stocks with a Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.

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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Equinix, Inc. (EQIX) : Free Stock Analysis Report
 
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