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Digital Realty (DLR) to Post Q4 Earnings: What to Expect?

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Digital Realty Trust (DLR - Free Report) is scheduled to release fourth-quarter 2020 earnings on Feb 11, after the closing bell. While the company’s results are expected to reflect year-over-year growth in revenues, funds from operations (FFO) per share are likely to display a decline.

In the last reported quarter, this data-center real estate investment trust (REIT) delivered a positive surprise of 4.05% in terms of FFO per share. Decent leasing activities and strong signed total bookings aided the company’s results.

Over the trailing four quarters, the company surpassed the Zacks Consensus Estimate on three occasions and missed in the other, the average beat being 2.50%. 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-eps-surprise | Digital Realty Trust, Inc. Quote

Let’s see how things have shaped up for Digital Realty prior to this announcement.

Factors to Consider

Data center REITs are expected to have continued to benefit from the growing IT infrastructure market in the fourth quarter.  At the onset of the pandemic, remote-working needs forced and accelerated digital transformation. This along with an increasing pace of cloud adoption is expected to have led to an increased data center demand.

Moreover, there has been a higher need for digital transformations from federal entities, while new technologies like 5G and augmented reality have been creating additional opportunities for edge deployments and data center operators.

Therefore, Digital Realty is expected to have gained from solid fundamentals of the data-center market in the to-be-reported quarter. The full spectrum of data-center solutions across a global platform is likely to have helped the company lure tenants, with several having multiple locations across the portfolio.

This has likely driven leasing deals and occupancy at the company’s data-center facilities. Moreover, it has been tapping external growth opportunities through acquisitions.

In November, Digital Realty’s unit — Interxion — announced the extension of its global platform, with a major expansion project in Zurich. The expansion, specifically, comes up neighboring the current ZUR1 and ZUR2 facilities on the Interxion Zurich Campus, which has emerged as a top cloud and interconnection hub in Switzerland. It also marks a strategic extension of the PlatformDIGITAL in the nation.

The Zacks Consensus Estimate for quarterly total revenues is $1.03 billion, indicating a 30.3% year-over-year jump.

However, given the solid growth prospects in the data-center real estate market, competition has intensified in the company’s markets. This is anticipated to have resulted in aggressive pricing pressure in the quarter to be reported.

Also, the company has seen tenants requesting rent deferrals amid the pandemic. This too is likely to have affected its fourth-quarter performance.

The Zacks Consensus Estimate for the fourth-quarter FFO per share has moved down a cent to $1.52 in a month’s time, indicating bearish sentiment of analysts. Also, it indicates a year-over-year decline of 6.2%.

Similarly, the consensus estimate for 2020 FFO per share is pinned at $6.13, suggesting a year-over-year decline of 7.8% on revenue estimates of $3.87 billion.

Here is what our quantitative model predicts:

Our proven model does not predict a positive surprise in terms of FFO per share for Digital Realty this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Digital Realty carries a Zacks Rank #3 and has an Earnings ESP of 0.00%.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a beat this quarter:

WashREIT , slated to release quarterly earnings on Feb 11, has an Earnings ESP of +0.59% and a Zacks Rank of 3 at present.

Hudson Pacific Properties, Inc. (HPP - Free Report) , slated to release quarterly earnings on Feb 17, currently has an Earnings ESP of +0.76% and a Zacks Rank of 3.

Rexford Industrial Realty, Inc. (REXR - Free Report) , slated to release fourth-quarter earnings on Feb 10, has an Earnings ESP of +2.13% and a Zacks Rank of 3 at present.

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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