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Here's Why You Should Hold on to Equinix (EQIX) Stock Now

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Equinix, Inc. (EQIX - Free Report) is well-poised to gain from the growing demand for inter-connected data-center space backed by enterprise cloud adoption and rising cloud or Internet customers.

To meet this global need, Equinix has been broadening its global footprint through the expansion of its International Business Exchange™ (IBX) data centers. Demand for high-performing data centers will escalate in the coming years amid high growth in cloud computing, the Internet of Things and big data, and elevated demand for third-party IT infrastructure. Growth in artificial intelligence, as well as autonomous vehicle and virtual/augmented reality markets, is anticipated to be robust over the next five-six years, providing excellent growth opportunities for this data center REIT.

In the first quarter of 2022, Equinix added 8,900 interconnections, taking the company's total interconnections to 428,200. These efforts, along with its global presence, have been bolstering strong interconnection activity.

To capitalize on the tailwinds, Equinix has been undertaking acquisitions and developmental activities to spread its data-center capacity in key markets alongside strengthening its competitive positioning and global reach. In April 2022, Equinix closed the acquisition of MainOne, thereby extending its reach to Africa. In May 2022, the company acquired four data centers in Chile from a leading telecommunications provider, Empresa Nacional De Telecomunicaciones S.A. (Entel).

EQIX follows a well-planned debt and equity funding strategy to support its organic and acquisition-driven growth. Apart from external financing, the company contributes a significant amount to internally-generated cash from operating activities based on its recurring revenues. As of Mar 31, 2022, the company had $3.9 billion of liquidity. Also, a credit rating upgrade to Baa2 from Moody’s during the quarter and a BBB rating from both Fitch and S&P give it favorable access to the debt market.

Analysts seem to be bullish on this Zacks Rank #3 (Hold) stock. The estimate revisions trend for 2022 funds from operations (FFO) per share indicates a favorable outlook for the company, as evident from its northward movement of 7.8% over the past two months.

However, the company’s huge capital deployment to support its expansion plans could affect its bottom line and margin growth in the near term. It expects to incur $25 million of integration costs in 2022 in relation to acquisitions.

Also, considering the strong growth potential of this industry, competition is expected to increase from the existing as well as new players in the space. The intensified competition could prompt competitors to resort to aggressive pricing policies, making Equinix vulnerable to pricing pressure.

Shares of Equinix have fallen 3.6% in the past three months compared with the industry’s decline of 7.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research
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Stocks to Consider

Some better-ranked stocks from the REIT sector are Prologis (PLD - Free Report) , Rexford Industrial Realty (REXR - Free Report) and OUTFRONT Media (OUT - Free Report) .

The Zacks Consensus Estimate for Prologis’ 2022 FFO per share has moved 1.8% upward in the past two months to $5.15. PLD presently carries a Zacks Rank of 2 (Buy).

The Zacks Consensus Estimate for Rexford Industrial Realty’s ongoing year’s FFO per share has been raised 1.6% over the past two months to $1.93. REXR carries a Zacks Rank #2, currently.

The Zacks Consensus Estimate for OUTFRONT Media’s current-year FFO per share has moved 1.5% northward in the past month to $2.09. OUT sports a Zacks Rank of 1 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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