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Should You Hold Equinix (EQIX) Stock in Your Portfolio Now?

Zacks Equity Research

Equinix Inc.’s EQIX global footprint and solid interconnected ecosystems have been aiding the company’s continued top-line growth. Nonetheless, consolidation in the telecommunications industry will likely result in low demand for co-location space, hindering its growth.

Notably, amid higher demand from cloud users, Equinix’s commitment to expand the International Business Exchange (IBX) platform is commendable. In fact, higher data consumption and cloud spending is expected to accelerate interconnection growth. Hence, with a notable share of the most densely interconnected exchange points, including cloud on-ramps, Equinix will be a major beneficiary of this macro trend.

Moreover, given the high-margin nature of interconnection business, Equinix’s comprehensive platform of more than 341,000 interconnections will generate high incremental cash flows for the company, boosting value for shareholders.

Further, a number of notable transactions highlight the company’s efforts to enhance its interconnection platform in key metro markets and leverage on cloud networking.   

Equinix also recently expanded its collaboration with IBM Cloud to provide private and scalable connectivity to global companies at the digital edge through Equinix Cloud Exchange Fabric (ECX Fabric).These deployments will be possible through the global ECX Fabric, which will provide a private onramp to IBM Cloud, including Direct Link Dedicated, Direct Link Exchange and Direct Link Dedicated Hosting. 

In addition, this April, the company expanded its connectivity service delivered via ECX Fabric to cater the interconnection needs of customers and enhance Platform Equinix as a global suite for digital business. This will facilitate connections between all of its 37 ECX Fabric markets, spanning across five continents.

However, these efforts require huge capital outlays and Equinix plans to add more data centers in the coming quarters to satisfy the growing demand for co-location and interconnection services. In fact, the company projects to incur $13 million of integration costs in 2019 and this might impede its bottom-line growth.

Additionally, Equinix’s limited cash balance will make it difficult to efficiently service its debt obligations. Growing debt burden will affect the operating results as interest expense will flare up.

Also, the ongoing consolidation in the telecommunications industry remains a major concern for the company. Any tenant merger and/acquisition activity may lead to decline in co-location space. This may reduce attractive expansion opportunities available to Equinix.

Furthermore, shares of this Zacks Rank #3 (Hold) company have surged 46% over the past six months, outperforming the real esate market's rally of 19.6%. 

Key Picks

Investors can also consider better-ranked stocks from the same space like Host Hotels & Resorts, Inc. HST, Lamar Advertising Company LAMR and PS Business Parks, Inc. PSB, carrying a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Host Hotels & Resorts’ funds from operations (FFO) per share estimates for 2019 moved marginally north to $1.82 over the past two months.

Lamar Advertising’s FFO per share estimates for the ongoing year have been revised slightly upward to $5.83 in 30 days’ time.

PS Business Parks’ current-year FFO per share estimate moved up marginally to $6.71 in the past month.

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