Digital Realty Trust ( DLR Quick Quote DLR - Free Report) is poised for growth with its portfolio-strengthening efforts on the back of expansions and the enhancement of data-center connectivity. However, aggressive pricing pressure is likely to prevail in the upcoming period amid the competitive landscape.
Markedly, surging growth in cloud computing, Internet of Things and big data, and greater call for third-party IT infrastructure are triggering demand for data-center infrastructure. Moreover, growth in artificial intelligence, autonomous vehicle and virtual/augmented reality markets is anticipated to remain robust over the next five to six years.
Importantly, data centers are poised to benefit from the heightening reliance on technology that has been fueled by the pandemic, in turn, opening up growth opportunities to data-center providers, such as Digital Realty,
Equinix, Inc. ( EQIX Quick Quote EQIX - Free Report) , CyrusOne Inc. ( CONE Quick Quote CONE - Free Report) and CoreSite Realty Corporation ( COR Quick Quote COR - Free Report) .
Digital Realty is capitalizing on such tailwinds by developing and acquiring data centers globally. Last month, the company announced new data centers in downtown Toronto, Canada, and Marseille, France. It also announced the availability of Amazon Web Services (AWS) Direct Connect 100Gbps connections on PlatformDIGITAL® in Seattle and Dublin.
Further, the data-center operator has a high-quality diversified customer base, comprising tenants from cloud, content, information technology, network, other enterprises, and financial industries. The majority of its tenants are investment-grade rated and numerous customers use multiple locations across the portfolio. This provides the company with cash-flow stability.
The company focuses on maintaining a solid balance sheet and has ample liquidity, with diversified sources of capital. Its debt maturity schedule is well laddered. Additionally, solid dividend payouts are the biggest enticement for REIT shareholders, and Digital Realty remains committed to that with its latest hike this year marking the 16th consecutive year of increase.
Digital Realty currently carries a Zacks Rank #3 (Hold). Shares of the company have appreciated 17.4% in the past three months compared with the
industry’s rally of 13.1%. Furthermore, the Zacks Consensus Estimate for 2021 funds from operations (FFO) per share moved up marginally to $6.53 over the past two months. You can see . the complete list of today’s Zacks #1(Strong Buy) Rank stocks here Image Source: Zacks Investment Research
Nevertheless, given the solid growth potential of the data-center real estate market, competition might intensify in the upcoming period from the existing players as well as the entry of new players. Amid these, there is aggressive pricing pressure in the data-center market, curbing Digital Realty’s pricing power.
Besides, the company has a significant number of properties situated outside the United States. It is also considering making additional international acquisitions. Although a sound global footprint helps the company meet the rising data-center requirements of customers around the world, notable exposure of its earnings to foreign-currency translation is a concern.
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