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Why Investors Should Hold Equinix (EQIX) for Higher Returns?

Zacks Equity Research

A successful portfolio manager is aware of the importance of having well-performing stocks in one’s portfolio. Indicators of a stock’s continued performance include a rise in share price and strong fundamentals.

One such stock that investors need to hold on to right now is Equinix Inc. EQIX. Though there are a few concerns, these are short lived. The stock has the potential to perform well over the long run.

Equinix’s share-price movement has been quite encouraging. Over the past year, its shares have gained 25.1%, while the industry, to which it belongs to, witnessed a decline of 9.9%.

What’s Driving Equinix?

Equinix is a global provider of network-neutral data centers and internet-exchange services for enterprises, content companies, systems integrators and network service providers. The company is on a growth trajectory, gathering momentum from its positive earnings surprise history and robust fundamentals.

It delivered a positive earnings surprise in three out of the last four quarters, with an average positive surprise of 6.8%.

Last quarter, Equinix reported solid year-over-year improvement in revenues as well as earnings. The year-over-year improvement was primarily driven by strong booking activity, Equinix's global platform, continued enterprise momentum and synergies from acquisition. The company witnessed revenue growth across all three geographic regions and verticals.

Acquisitions have been a major contributor to growth at Equinix. The company has made several buyouts to continue expanding its data-center capacity in many of its key markets since 2003. Last year, the company bought various assets, including Itconic and Zenium businesses, and data-center assets from IO UK and ICT-Center AG.

Furthermore, the company completed the pending acquisition of 24 data-center sites, which consist of 29 data-center buildings across 15 metro areas, in operation from Verizon Communications VZ for a total cash consideration of $3.6 billion in 2017. Other notable acquisitions in the recent past include Telecity Group Plc, Bit-isle and Nimbo. All these acquisitions are making decent contributions toward total revenue growth.

Bottom Line

Expansion in important markets and consolidation of facilities in the existing ones are important parts of Equinix's core strategy. The company strives to boost its revenue base and profitability by offering upgraded technology to clients. Moreover, its recurring revenue model has provided the much-needed support to the company's revenue stream over the years. The company's cloud and IT service businesses are its fastest growing segments, and account for roughly one fourth of its total revenues.

Further, Equinix remains positive on the growing demand for data centers. To meet the rising demand for cloud services, this global interconnection and data-center company is expanding its IBX data centers globally, and gaining popularity among tech companies looking for data management.

Additionally, the company’s earnings are projected to grow 15.3% over the long term and it has a Growth Style Score of B.

Nonetheless, we are slightly concerned about the company’s growing debt burden, which will affect operating results as interest expenses are likely to flare up. Also, intensifying competition from established internet data-center operators such as AT&T T and CenturyLink Inc. CTL might affect product pricing, thereby denting Equinix’s margins.

Equinix has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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