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Is Iron Mountain (IRM) Stock Apt for Your Portfolio Now?
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Iron Mountain Incorporated (IRM - Free Report) is set to benefit from its recurring revenue business model and diverse tenant base. Also, its accretive acquisitions and data center business expansion efforts bode well. However, stiff competition from industry peers could curb pricing power and lower margins. High interest rates and adverse foreign currency movements add to Iron Mountain’s woes.
Iron Mountain enjoys a steady stream of recurring revenues from its core storage and records management businesses. The company derives the majority of its revenues from fixed periodic (usually earned on a monthly basis) storage rental fees charged to customers based on the volume of their records stored.
The company has enjoyed a consistent customer retention of approximately 98% over the years. This resilient business model also fosters notable cross-selling advantages across various sectors and contributes to strong growth in cash flow. We estimate storage rental revenues to grow 10% in 2023, 10.9% in 2024 and 11.5% in 2025.
Iron Mountain is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. The company is actively pursuing both organic growth initiatives and expansion endeavors to tap the robust demand for connectivity, interconnection and colocation space, thereby stimulating leasing operations.
In the second quarter, the company achieved substantial 17.9% growth in data center revenues, and in the first half of 2023, it successfully leased 55 megawatts of data center capacity. In 2022, IRM exceeded its initial projection of 130 megawatts by leasing 139 megawatts, and based on the current leasing activity, it is poised to surpass its 2023 guidance of 80 megawatts.
Iron Mountain has ample financial flexibility to meet its near-term debt obligations and other capital commitments while pursuing growth opportunities. It has no significant debt maturities until 2027, and 83% of its net debt was fixed.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Iron Mountain remains committed to that. In August 2023, concurrent with its second-quarter 2023 earnings release, it announced a 5.1% hike in its cash dividend to 65 cents per share from 61.85 cents paid out earlier. Moreover, in the last five years, the company increased its dividends thrice. Given its healthy operating platform, lower-than-industry payout ratio and solid financial position, the latest dividend hike is likely to be sustainable.
Shares of this Zacks Rank #2 (Buy) company have rallied 8.6% in the past three months, outperforming the industry’s increase of just 0.1%.
Image Source: Zacks Investment Research
However, the records and information management services industry is characterized by extensive fragmentation, featuring a multitude of rivals in North America and worldwide. While Iron Mountain presents appealing offerings and holds a robust market stance, formidable competition poses a notable challenge for the company. This is expected to lead to competitive pricing strategies and exert ongoing pressure on profit margins in the foreseeable future.
Furthermore, a high interest rate environment is a concern for IRM as this would lead to increased borrowing expenses for the company, ultimately impacting its capacity to acquire or construct real estate. Iron Mountain bears a significant load of debt, with its net debt reaching about $11.2 billion as of Jun 30, 2023. Looking ahead to 2023, our projections for net interest expenses suggest a noteworthy 20% surge compared to the previous year.
The Zacks Consensus Estimate for Welltower’s current-year FFO per share has moved nearly 1% northward over the past month to $3.51.
The Zacks Consensus Estimate for W.P. Carey’s 2023 FFO per share has moved marginally upward in the past two months to $5.36.
The Zacks Consensus Estimate for Omega Healthcare’s ongoing year’s FFO per share has been raised marginally upward over the past week to $2.83.
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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Is Iron Mountain (IRM) Stock Apt for Your Portfolio Now?
Iron Mountain Incorporated (IRM - Free Report) is set to benefit from its recurring revenue business model and diverse tenant base. Also, its accretive acquisitions and data center business expansion efforts bode well. However, stiff competition from industry peers could curb pricing power and lower margins. High interest rates and adverse foreign currency movements add to Iron Mountain’s woes.
Iron Mountain enjoys a steady stream of recurring revenues from its core storage and records management businesses. The company derives the majority of its revenues from fixed periodic (usually earned on a monthly basis) storage rental fees charged to customers based on the volume of their records stored.
The company has enjoyed a consistent customer retention of approximately 98% over the years. This resilient business model also fosters notable cross-selling advantages across various sectors and contributes to strong growth in cash flow. We estimate storage rental revenues to grow 10% in 2023, 10.9% in 2024 and 11.5% in 2025.
Iron Mountain is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. The company is actively pursuing both organic growth initiatives and expansion endeavors to tap the robust demand for connectivity, interconnection and colocation space, thereby stimulating leasing operations.
In the second quarter, the company achieved substantial 17.9% growth in data center revenues, and in the first half of 2023, it successfully leased 55 megawatts of data center capacity. In 2022, IRM exceeded its initial projection of 130 megawatts by leasing 139 megawatts, and based on the current leasing activity, it is poised to surpass its 2023 guidance of 80 megawatts.
Iron Mountain has ample financial flexibility to meet its near-term debt obligations and other capital commitments while pursuing growth opportunities. It has no significant debt maturities until 2027, and 83% of its net debt was fixed.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Iron Mountain remains committed to that. In August 2023, concurrent with its second-quarter 2023 earnings release, it announced a 5.1% hike in its cash dividend to 65 cents per share from 61.85 cents paid out earlier. Moreover, in the last five years, the company increased its dividends thrice. Given its healthy operating platform, lower-than-industry payout ratio and solid financial position, the latest dividend hike is likely to be sustainable.
Shares of this Zacks Rank #2 (Buy) company have rallied 8.6% in the past three months, outperforming the industry’s increase of just 0.1%.
Image Source: Zacks Investment Research
However, the records and information management services industry is characterized by extensive fragmentation, featuring a multitude of rivals in North America and worldwide. While Iron Mountain presents appealing offerings and holds a robust market stance, formidable competition poses a notable challenge for the company. This is expected to lead to competitive pricing strategies and exert ongoing pressure on profit margins in the foreseeable future.
Furthermore, a high interest rate environment is a concern for IRM as this would lead to increased borrowing expenses for the company, ultimately impacting its capacity to acquire or construct real estate. Iron Mountain bears a significant load of debt, with its net debt reaching about $11.2 billion as of Jun 30, 2023. Looking ahead to 2023, our projections for net interest expenses suggest a noteworthy 20% surge compared to the previous year.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are Welltower (WELL - Free Report) , W.P. Carey (WPC - Free Report) and Omega Healthcare Investors (OHI - Free Report) . Each of these companies presently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Welltower’s current-year FFO per share has moved nearly 1% northward over the past month to $3.51.
The Zacks Consensus Estimate for W.P. Carey’s 2023 FFO per share has moved marginally upward in the past two months to $5.36.
The Zacks Consensus Estimate for Omega Healthcare’s ongoing year’s FFO per share has been raised marginally upward over the past week to $2.83.
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.