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Growth & Income

CoreSite Realty Corporation (COR - Snapshot Report) recently delivered strong first quarter results marked by an 18% increase in revenue and a 44% increase in funds from operation (FFO).

And management raised its guidance for the remainder of the year, prompting analysts to also revise their estimates higher. This sent the stock to a Zacks #2 Rank (Buy).

Along with rising estimates and strong growth projections, CoreSite pays a dividend that yields a solid 2.8%.

Company Description

CoreSite Realty is a real estate investment trust (REIT) that owns and operates data centers in several top U.S. markets including Los Angeles, the San Francisco Bay and Northern Virginia areas, Chicago, Boston, New York and Miami.

CoreSite's data centers feature power, advanced cooling and security systems and many are points of dense network interconnection. The company was founded in 2010 and has a market cap of $521 million.

First Quarter Results

CoreSite Realty delivered strong first quarter results on April 26. Funds from operation (FFO) came in at 36 cents, beating the Zacks Consensus Estimate by 2 cents. It was a stellar 44% increase over the same quarter last year.

Revenue rose 18% to $47.3 million, ahead of the Zacks Consensus Estimate of $46.0 million. This was driven by a 26% increase in Power revenue and a 17% increase in Rental revenue.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $20 million, a 41% increase over the same quarter last year.

Estimates Rising

Following strong Q1 results and expected accretion from an acquisition, management raised its guidance for the remainder of the year. The company now expects 2012 FFO between $1.38 and $1.52 per share, up from previous guidance of $1.36-$1.50.

Analysts revised their estimates higher for both 2012 and 2013, sending the stock to a Zacks #2 Rank (Buy). The Zacks Consensus Estimate for 2012 is now $1.47, within guidance. The 2013 consensus is currently $1.69, a 15% increase over 2012 FFO.

Dividend

As a REIT, CoreSite Realty must distribute at least 90% of its earnings to shareholders to avoid being taxed on that income.

It currently pays a dividend that yields a solid 2.8%.

Valuation

CoreSite Realty has been on a tear since early October, nearly doubling over that stretch. But the valuation picture still looks reasonable.

Shares trade at 16x 12-month forward earnings, above the industry median of 14x. But this premium seems justified given the company's above-average growth prospects.

And its price to book ratio of 0.9 is well below the peer group multiple of 2.0.

The Bottom Line

With rising earnings estimates, strong growth potential, a solid 2.8% and reasonable valuation, CoreSite Realty offers a lot of upside potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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