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Key Factors to Impact Digital Realty's (DLR) Q1 Earnings

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Digital Realty Trust (DLR - Free Report) is scheduled to release first-quarter 2021 earnings on Apr 29, after the closing bell. The company’s results are expected to reflect year-over-year increases in revenues and funds from operations (FFO) per share.

In the last reported quarter, this data-center real estate investment trust (REIT) delivered a positive surprise of 5.9% in terms of FFO per share. Decent leasing activities and strong signed total bookings aided 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 3.34%. 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

Digital transformation has likely driven steady demand for the data-center space in first-quarter 2021. Markedly, technological advancements such as The Internet of Things, 5G, autonomous vehicles and artificial intelligence have been driving digital transformation. Moreover, escalating growth of data, rapid accelerations in cloud adoption and greater need for IT outsourcing have propelled the demand for data-center infrastructure.

Hence, as infrastructure providers for this rapidly-growing digital economy, data center providers such as Digital Realty, Equinix, Inc. (EQIX - Free Report) , CyrusOne Inc. (CONE - Free Report) and CoreSite Realty Corporation (COR - Free Report) are likely to have enjoyed a decent demand in the January-March period.

Apart from these, data centers continue to benefit from the heightening reliance on technology in the wake of the coronavirus pandemic. In fact, demand and occupancy remain strong in top-tier data-center markets, while new constructions are being absorbed at a fast pace. Hence, Digital Realty, with its PlatformDIGITAL, is poised to have capitalized on such tailwinds in first-quarter 2021.

In fact, the availability of the full spectrum of data-center solutions across its global platform is expected to have helped the company to lure tenants, with several having multiple locations across the portfolio. This has likely propelled leasing deals and occupancy growth at the company’s data-center facilities, thereby driving top-line growth.

In fact, the Zacks Consensus Estimate for quarterly total revenues is pegged at $1.05 billion, indicating a 27.5% year-over-year jump.

Moreover, it has been pursuing portfolio-fortification moves on the back of expansions and enhancement of data-center connectivity.

In March, Digital Realty’s unit — Interxion — started the construction of a third data center, BRU3, in Belgium’s capital Brussels. The first phase of the project is anticipated to be completed in fourth-quarter 2021.

In the same month, Digital Realty announced new on-ramps in Atlanta, Los Angeles, Düsseldorf, Frankfurt and Vienna to expand the safe and private access to Google Cloud's global network.  The new direct connections will provide high-speed and low-latency connections in Digital Realty's locations in Atlanta, Los Angeles, Vienna in Austria and Düsseldorf in Germany.

However, given the solid prospects of the data-center real estate space, developers have taken notice of the asset class’s potential. Hence, competition is expected to have increased in the first quarter from existing players as well as the entry of new players. Amid this, there has been aggressive pricing pressure in the data-center market in the quarter under review. This is likely to have curbed Digital Realty’s growth.

Also, the company’s activities in the quarter were inadequate to gain adequate analyst confidence. The Zacks Consensus Estimate for first-quarter FFO per share has been unchanged at $1.57 in a month’s time. Nonetheless, it indicates year-over-year growth of 2.6%.

Here is what our quantitative model predicts:

Digital Realty has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of a FFO beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Digital Realty is +1.06%.

Zacks Rank: Digital Realty currently carries a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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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