Here's Why You Should Retain Equinix (EQIX) Stock for Now
The rise in demand for data centers on the back of growing reliance on technology and acceleration in digital transformation strategies by enterprises positions Equinix, Inc. EQIX well for growth.
To meet this global need, the company has been broadening its global footprint through the expansion of its International Business Exchange (IBX) data centers. In October 2022, it unveiled plans for a $74 million IBX data center in Jakarta to capitalize on the country’s growing digital needs.
In addition, it is expected that the demand for high-performing data centers will increase in the coming years, owing to the exponential rise in data traffic. Equinix is likely to capitalize on this trend, which will aid its long-term growth.
EQIX 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. Over the last three years, 90% of the total revenues were recurring in nature. This ensures a stable cashflow generation for the company and aids top-line growth.
Equinix has been carrying out acquisitions and developmental activities to spread its data-center capacity in key markets alongside strengthening its competitive positioning and global reach. In August 2022, it closed the buyout of a data center in Peru from Entel for a purchase consideration of $80.3 million based on the exchange rate on Aug 1, 2022.
EQIX maintains a healthy balance-sheet position with ample liquidity. It exited third-quarter 2022 with $6.4 billion of liquidity. Also, its investment-grade credit ratings render it favorable access to the debt market. The company’s well-planned debt and equity funding strategy support its organic and acquisition-driven growth.
Analysts seem bullish on this Zacks Rank #3 (Hold) stock. The estimate revisions trend for 2022 funds from operations (FFO) per share indicates a favorable outlook for the company, as it has been marginally revised upward in the past week to $29.20.
Shares of Equinix have gained 12.3% in the quarter-to-date period compared with the real estate market’s growth of 5.8%.
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However, the company faces intense competition from existing and new players in the space, given the strong growth potential of this industry. This could prompt competitors to resort to aggressive pricing policies, making Equinix vulnerable to pricing pressure.
Higher interest rates are likely to make borrowing costs to purchase or develop real estate costlier and substantially increase Equinix’s debt burden.
Also, a major part of the company’s business lies outside the United States, and a stronger U.S. dollar could hurt the company’s revenue growth in the near term.
Stocks to Consider
Some better-ranked stocks from the REIT sector are VICI Properties VICI, Lamar Advertising LAMR and Equity Commonwealth EQC, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is currently pegged at $1.91.
The Zacks Consensus Estimate for Lamar Advertising’s 2022 FFO per share presently stands at $7.34.
The Zacks Consensus Estimate for Equity Commonwealth’s ongoing year’s FFO per share is pegged at 16 cents, presently.
Note: Anything related to earnings presented in this write-up represent FFO — a widely used metric to gauge the performance of REITs.
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