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Factors to Impact Digital Realty (DLR) This Earnings Season

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Digital Realty Trust (DLR - Free Report) will report second-quarter 2021 results on Jul 29, after the bell. The company’s quarterly results are expected to reflect year-over-year growth in revenues and funds from operations (FFO) per share.

In the previous quarter, this data-center real estate investment trust (REIT) delivered a surprise of 5% in terms of FFO per share. The quarterly results were aided by decent leasing activities and strong signed total bookings.

Over the last four quarters, the company outpaced the Zacks Consensus Estimate on all occasions, the average beat being 4.76%. 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

The demand for data-center space is likely to have been strong in second-quarter 2021. This is because surging growth in cloud computing, Internet of Things and big data, and greater call for third-party IT infrastructure are spurring demand for data-center infrastructure. Growth in artificial intelligence, autonomous vehicle and virtual/augmented reality markets has been creating a robust base for data centers too.

Hence, being 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 well placed for sustainable growth.

In the wake of the pandemic, data centers continue to benefit from the heightening reliance on technology. Demand and occupancy have been healthy in top-tier data-center markets, while new constructions are being absorbed at a fast pace. Hence, Digital Realty, with its PlatformDIGITAL, is anticipated to have capitalized on these tailwinds during the second quarter.

Digital Realty also 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 is likely to have provided the company with cash-flow stability, thereby driving top-line growth during the period in discussion.

The Zacks Consensus Estimate for quarterly total revenues is pegged at $1.08 billion, indicating an 8.3% year-over-year jump.

Moreover, it has been strengthening its portfolio on the back of expansions and development.

In May, the company announced new data centers in downtown Toronto, Canada and Marseille, in a bid to boost its presence across the globe. Also, in April, it unveiled its largest data center facility, Digital Loyang II, in Singapore.

Nevertheless, Digital Realty competes with several data-center developers, owners and operators, many of whom enjoy ownership of similar assets in locations same as Digital Realty. Given the solid growth potential in the data-center market, competition from other providers is expected to have intensified in the June-end quarter, prompting aggressive pricing policies. This might have curbed Digital Realty’s growth.

Prior to the second-quarter earnings release, the company’s activities were inadequate to gain adequate analyst confidence. The Zacks Consensus Estimate for second-quarter FFO per share has been revised marginally downward to $1.58 in a week’s time. Nonetheless, it indicates year-over-year growth of 2.6%.

What the Zacks Model Unveils

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

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

Earnings ESP: Digital Realty has an Earnings ESP of +0.63%

Zacks Rank: Digital Realty currently carries a Zacks Rank of 3. 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.