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What's in the Offing for Digital Realty (DLR) in Q2 Earnings?

·5 min read

Digital Realty Trust DLR is set to report second-quarter 2022 earnings on Jul 28 after market close. The company’s quarterly results are expected to reflect year-over-year growth in revenues and funds from operations (FFO) per share.

This data center real estate investment trust (“REIT”) reported an in-line performance in terms of FFO per share in the previous quarter.

Over the last four quarters, Digital Realty outpaced the Zacks Consensus Estimate on one occasion, met on another and missed the same in the other two quarters, the average negative surprise being 0.32%. This is depicted in the chart below:

Digital Realty Trust, Inc. Price and EPS Surprise

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

Digital Realty Trust, Inc. price-eps-surprise | Digital Realty Trust, Inc. Quote

Let’s see how things have shaped up for DLR before this announcement.

Factors to Consider

There is robust demand for data center infrastructure amid high growth in cloud computing, the Internet of Things and big data and elevated demand for third-party IT infrastructure. Moreover, the growth in the AI, autonomous vehicles and virtual/augmented reality markets has been creating a robust base for data centers. Also, the heightening reliance on technology in the pandemic era continues to benefit data centers.

Being infrastructure providers for this rapidly growing digital economy, data center landlords, including Digital Realty, are expected to have capitalized on the favorable environment. DLR also has a high-quality diversified customer base comprising tenants from the cloud, content, IT, network, other enterprises and financial industries. The majority of its tenants are investment-grade rated, and numerous customers use multiple locations across the portfolio. This is likely to have provided the company with cash-flow stability during the period in discussion, thereby driving the top line.

The Zacks Consensus Estimate for quarterly rental revenues is pegged at $809 million, up from $752 million in the prior quarter and $769 million in the year-ago quarter. However, the consensus mark for revenues from tenant reimbursement utilities is pegged at $204 million, down from $225 million in the prior quarter.

Digital Realty is likely to have continued to experience solid demand for its interconnection solutions. The Zacks Consensus Estimate for interconnection & other revenues currently stands at $95 million, up from $94 million in the prior quarter and $91 million in the year-ago quarter.

The consensus estimate for quarterly total revenues is pegged at $1.16 billion, indicating a 6.01% year-over-year jump.

Digital Realty has been strengthening its portfolio with expansions and developments. During the quarter, DLR announced the formation of a joint venture with the Israel-based real estate company, Mivne Real Estate, for the development of a new colocation and connectivity hub in Israel. The move comes as part of Digital Realty’s effort to boost its Mediterranean presence and marks DLR’s entry into the Israeli market.

Before the second-quarter earnings release, the company’s activities were not adequate to gain analysts’ confidence. The Zacks Consensus Estimate for second-quarter FFO per share has remained unchanged at $1.65 in a month. However, it indicates year-over-year growth of 7.14%.

However, Digital Realty competes with several data center developers, owners and operators, many of whom enjoy the ownership of similar assets at similar locations as the company. Amid the solid growth potential in the data center market, competition from other providers is expected to have intensified in the June-end quarter, prompting aggressive pricing policies. This might have curbed Digital Realty’s growth.

Here Is What Our Quantitative Model Predicts:

Digital Realty does not have the right combination of two key elements — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an FFO beat. However, that is not the case here.

Earnings ESP: Digital Realty has an Earnings ESP of -2.01%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Digital Realty currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

Here are some stocks from the REIT sector — American Tower Corporation AMT, Public Storage PSA and SBA Communications Corporation SBAC — that you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.

American Tower Corporation, scheduled to report second-quarter earnings on Jul 28, currently has an Earnings ESP of +1.71% and carries a Zacks Rank of 3.

Public Storage, slated to release quarterly numbers on Aug 4, has an Earnings ESP of +0.31% and carries a Zacks Rank of 3 at present.

SBA Communications Corporation, scheduled to report quarterly numbers on Aug 1, currently has an Earnings ESP of +0.95% and carries a Zacks Rank of 3.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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.

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SBA Communications Corporation (SBAC) : Free Stock Analysis Report
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