U.S. Markets closed

Key Factors to Impact Digital Realty's (DLR) Q1 Earnings

Zacks Equity Research

Digital Realty Trust DLR is scheduled to release first-quarter 2019 results on Apr 25, after the market closes. The company’s results will likely display year-over-year growth in funds from operations (FFO) per share and revenues.

In the last reported quarter, this San Francisco, CA-based data-center real estate investment trust (REIT) delivered a positive surprise of 0.60% in terms of funds from operations (FFO) per share. Results were supported by growth in revenues.

Over the trailing four quarters, the company beat the Zacks Consensus Estimate in all four occasions — the average beat being 1.56%. This is depicted in the graph below:

Digital Realty Trust, Inc. Price and EPS Surprise
 

Digital Realty Trust, Inc. Price and EPS Surprise | Digital Realty Trust, Inc. Quote

Let’s see how things are shaping up for Digital Realty prior to this announcement.

Factors to Consider

Solid fundamentals of the data-center market are likely to have helped Digital Realty ride on its growth curve in the to-be-reported quarter. In fact, 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, demand for data center spaces has been rising.

Also, 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, resulting in an upbeat outlook for data centers in the future. As such, in the top-tier data center markets, demand is outpacing supply and despite enjoying high occupancy, these markets are absorbing new construction at a faster pace.

Amid these, Digital Realty is banking on strategic acquisitions and development efforts, which are expected to boost its top-line growth. This January, the company announced the expansion of its Singapore-connected campus with a new facility. Further, during the Dec-end quarter, it completed the acquisition of Ascenty, a data-center provider in Brazil, for roughly $1.8 billion. Moreover, the company has fortified its presence in Europe, Australia and Asia in recent years through strategic acquisitions and development of high-quality facilities.

In addition to the above, Digital Realty has consistently strived for attaining operational excellence. In February, the company announced that it has achieved "five nines" of uptime, surpassing 99.999% availability throughout 2018, for the 12th consecutive year. It reflects the data-center REIT’s efficiency in developing and delivering data-center solutions. This operational excellence has been achieved despite growth of the company’s portfolio over the years, which has expanded from 74 data-center suites at the beginning of 2007 to more than 800 by the end of 2018.

Amid these, the Zacks Consensus Estimate for the first-quarter total revenues is nearly $795.5 million, indicating 6.9% year-over-year growth. Also, the Zacks Consensus Estimate for FFO per share of $1.65 projects an increase of nearly 2.5% from the prior-year reported figure.

However, competition has intensified, given the solid growth potential in the data-center real estate market. This is likely to have resulted in aggressive pricing pressure in the quarter under review. In addition to this, interest-expense burden remains a concern, with the company having a substantial debt position.

Here is what our quantitative model predicts:

Digital Realty has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Earnings ESP: The Earnings ESP for Digital Realty is +1.27%.

Zacks Rank: Digital Realty carries a Zacks Rank #2 (Buy), currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

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 positive surprise this quarter:

Alexandria Real Estate Equities, Inc. ARE, scheduled to release first-quarter earnings on Apr 29, has an Earnings ESP of +0.3% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Simon Property Group, Inc. SPG, slated to release earnings on Apr 30, has an Earnings ESP of +0.50% and a Zacks Rank of 3.

Public Storage PSA, set to report quarterly numbers on May 1, has an Earnings ESP of +0.88% and a Zacks Rank of 3.

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

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

See Latest Stocks Today >>


Is your investment advisor fumbling your financial future?
See how you can more effectively safeguard your retirement with a new Special Report, “4 Warning Signs Your Investment Advisor Might Be Sabotaging Your Financial Future.” Click to get your free report.
 
Simon Property Group, Inc. (SPG) : Free Stock Analysis Report
 
Alexandria Real Estate Equities, Inc. (ARE) : Free Stock Analysis Report
 
Public Storage (PSA) : Free Stock Analysis Report
 
Digital Realty Trust, Inc. (DLR) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research