Iron Mountain Incorporated IRM is well-poised to benefit from strong cash flows in the storage and records management business, its expansion efforts into the data center business and a healthy balance-sheet position.
The Boston, MA-based company derives the majority of its revenues from fixed periodic (usually earned on a monthly basis) storage rental fees charged to customers based on the volume of their records stored. This ensures a steady revenue generation.
Moreover, its core storage and records management businesses are well-poised to capitalize on the rising volume in the fast-growing markets in the upcoming period.
IRM has been expanding its fast-growing businesses, especially the data center segment, to supplement its storage segment performance. Further, backed by the strong demand for connectivity, interconnection and colocation space, leasing activity has received an impetus, which bodes well for the company. From the beginning of the year through Aug 4, 2022, Iron Mountain carried out 118 megawatts of leasing.
The company also engages in capital recycling by monetizing non-core assets and utilizes the sale proceeds to fund its acquisitions and development projects. Such prudent capital management practices augur well for its growth endeavors and enable it to expand its operations in international markets.
Iron Mountain maintains a healthy balance-sheet position with ample financial flexibility to meet its near-term debt obligations and other capital commitments while pursuing growth opportunities. As of Jun 30, 2022, it had nearly $1.8 billion of total liquidity and no significant debt maturities until 2027. Such a strong financial footing supports its expansion efforts.
Additionally, its trailing 12-month return on equity (ROE) is 60.58% compared with the industry’s average of 3.76%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Over the past three to five years, IRM recorded funds from operations (FFO) per share growth of 10.49% compared with the industry’s average of 0.72%.
Analysts, too, seem bullish on the Zacks Rank #3 (Hold) stock. The Zacks Consensus Estimate for the company’s 2022 FFO per share indicates a favorable outlook for the company, as it has increased 4.1% in the past two months to $3.78.
Its shares have lost 9.5% in the past three months compared with its industry’s decline of 11.1%.
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However, Iron Mountain faces stiff competition from numerous competitors in North America and around the world. This is likely to prompt competitors to resort to aggressive pricing policies, making IRM vulnerable to pricing pressure.
The company has a significant international presence and is often subjected to adverse foreign currency translations. This negatively impacts its top-line growth.
Also, higher interest rates are likely to affect the company’s ability to purchase or develop real estate.
Stocks to Consider
Some better-ranked stocks from the REIT sector are SBA Communications SBAC, Extra Space Storage EXR and Xenia Hotels & Resorts XHR, 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 SBA Communications’ current-year FFO per share has moved marginally northward in the past month to $12.17.
The Zacks Consensus Estimate for Extra Space Storage’s ongoing year’s FFO per share has been raised marginally upward over the past week to $8.49.
The Zacks Consensus Estimate for Xenia Hotels & Resorts’ 2022 FFO per share has moved 15.2% upward in the past two months to $1.59.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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