Equinix Valuation Pretty High

As a leading provider of colocation services, Equinix, Inc. (EQIX - Analyst Report) is positioned to benefit from its differentiated position as a neutral colocation provider.  The company’s state of the art data centers are located in Tier 1 markets where real estate is in tight supply.  Moreover, increasing power and cooling requirements of today’s equipment has made legacy data centers obsolete, improving competitive conditions in the market.

We are positive on EQIX’s recurring revenue model and expansion into the European market, which has very favorable characteristics. Equinix is slated to open nine new data centers, including three each in Europe, Asia and the United States. To-date, the company has posted 21 quarters of revenue and EBITDA growth.

However, a high valuation and significant capital expenses to build out its datacenters are causing concern. Equinix competes with Internet data centers operated by established communications carriers. Equinix does still compete in a crowded market, which could become more price competitive.  We maintain a Hold rating on the shares.

Shares of Equinix are currently at a rich P/E multiple of 117.4x our 2008 EPS estimate, which is a large premium to industry median. On a P/S multiple, EQIX is trading at 4.8x our 2008 revenue estimate of $18.78 per share. We set our price target of $94.00, representing a P/S multiple of 5.0x our 2008 revenue estimate, which we believe is achievable for a growing company like EQIX.

Anita Mohata and Priyanka Poddar contributed to this report.

Read the full analyst report on EQIX