Here's Why Equinix's (EQIX) Shares Soared 11.4% in 6 Months

·4 min read

Equinix, Inc.’s EQIX shares have jumped 11.4% in the past six months against the real estate market’s fall of 8.6%.

This global digital infrastructure company reported fourth-quarter 2022 adjusted funds from operations (AFFO) per share of $7.09, surpassing the Zacks Consensus Estimate of $6.82. The figure grew 13.9% from the prior-year quarter.  

Its quarterly results reflected steady growth in colocation and inter-connection revenues.

Management issued an upbeat outlook for 2023. For the current year, AFFO per share is estimated between $30.79 and $31.64, suggesting a 4-7% increase from the prior year on an as-reported basis.

Analysts, too, seem bullish about this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2023 FFO per share has moved marginally upward over the past week, indicating a favorable outlook for EQIX.

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Zacks Investment Research

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Let us decipher the factors behind the surge in the stock price.

The growing reliance on technology and acceleration in digital transformation strategies by enterprises have led to a rise in demand for data centers, benefiting data center REITs like Equinix.

The company has a recurring revenue model that comprises colocation, related interconnection and managed IT infrastructure services. The customers are billed at fixed rates on a recurring basis through the life of the respective contracts. This ensures a stable cashflow generation for the company and aids top-line growth. In fourth-quarter 2022, recurring revenues were $1.77 billion, up 10.6% from the year-ago quarter.

Also, revenues from the Americas, EMEA and the Asia Pacific rose 11.5%, 8.9% and 7% to $871.8 million, $601.7 million and $397.4 million, respectively.

Of late, Equinix has been very active on the acquisition and expansion front to meet the global need for data centers. It has been amplifying its global footprint by expanding its International Business Exchange (IBX) data centers.

In 2022, the company opened or acquired 13 new IBX data centers, opened three xScale data centers through joint ventures and entered three new markets. This increased Equinix’s total number of IBX and xScale data center facilities to 248.

Moreover, in March 2023, Equinix announced that Oxford Quantum Circuits (“OQC”) aims to make one of the most powerful quantum computers commercially available to businesses worldwide through Equinix's TY11 Tokyo IBX data center. OQC is a leading global Quantum Computing as a Service (QCaaS) company. The move is expected to benefit businesses with the ease of access to quantum computing.

In February 2023, Equinix announced the addition of five long-term Power Purchase Agreements (PPAs) in Spain, aggregating 225 megawatts (MW).

The move considerably increased the company’s backing of renewable power projects. Once operations of the projects begin in 2025, it is likely to produce enough power to match consumption at Equinix's IBX data centers in Madrid, Barcelona and Seville.

In December 2022, Equinix unveiled plans to reduce its overall power use by increasing operating temperature ranges within its data centers. It is the first operator of colocation data centers to introduce such efficiency initiatives. Over time, this initiative will help thousands of Equinix customers to reduce the Scope 3 carbon emissions associated with their data center operations.

Further, Equinix’s robust balance-sheet position has enabled it to capitalize on long-term growth opportunities. It had $5.8 billion of liquidity as of Dec 31, 2022. As of the fourth-quarter end, the company enjoyed investment-grade credit ratings of Baa2 from Moody’s, BBB rating from S&P Global Ratings and BBB+ from Fitch Ratings, rendering it favorable access to the debt market.

Solid dividends are a huge attraction for REIT investors, and EQIX has remained committed to that, even during the pandemic. In February 2023, concurrent with the fourth-quarter 2022 earnings release, Equinix’s board of directors announced a 10% sequential hike in its quarterly cash dividend from $3.10 per share to $3.41. It has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 7.68%. Such efforts boost investors’ confidence in the stock.

Stocks to Consider

Some better-ranked stocks from the REIT sector are Alexandria Real Estate Equities ARE, Terreno Realty TRNO, each currently carrying a Zacks Rank #2 (Buy) and Service Properties Trust SVC, currently carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Alexandria Real Estate’s 2023 FFO per share stands at $8.94.

The Zacks Consensus Estimate for Terreno Realty’s current-year FFO per share is pegged at $2.17.

The Zacks Consensus Estimate for Service Properties Trust’s 2023 FFO per share is pegged at $1.89.

Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.

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