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Equinix (EQIX) Shares Rally 15% YTD: Will the Trend Last?
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Shares of Equinix (EQIX - Free Report) , carrying a Zacks Rank #3 (Hold) currently, have risen 15.1% year to date against the real estate market’s fall of 1.8%.
Earlier this month, this global digital infrastructure company reported second-quarter 2023 adjusted funds from operations (AFFO) per share of $8.04, which surpassed the Zacks Consensus Estimate of $7.51. The figure improved 6.1% from the prior-year quarter. Its results reflected steady growth in colocation and inter-connection revenues amid the strong demand for digital infrastructure.
EQIX also raised its AFFO per share guidance for 2023. For the current year, AFFO per share is estimated between $31.51 and $32.15, revised upward from the prior-guided range of $31.15-$32.00. This suggests a 7-9% increase from the previous year.
Image Source: Zacks Investment Research
Let us now decipher the factors behind the surge in the stock price and also check whether this trend will last or not.
The need for data center infrastructure has stayed strong due to the expansion of cloud computing, the Internet of Things and Big Data. Additionally, there is increased demand for third-party IT infrastructure. Furthermore, the rise of AI, autonomous vehicles and virtual/augmented reality markets has established a sturdy foundation for data centers.
Amid this, Equinix’s geographically diverse portfolio of International Business Exchanges (“IBX”) data centers is expected to benefit from enterprises’ increasing dependence on technology and the expedited implementation of digital transformation strategies.
Moreover, the company has a recurring revenue model, which comprises colocation, related interconnection and managed IT infrastructure services. This ensures a stable cash flow generation for the company and aids top-line growth.
In the second quarter, recurring revenues came in at $1.92 billion, up 12.3% from the year-ago quarter. Moreover, revenues from the Americas, EMEA and the Asia Pacific rose 7.1%, 14.6% and 14.2% to $889.7 million, $686.8 million and $441.9 million, year over year, respectively.
Equinix has been focusing on the expansion of data center capacity in key markets and strengthening its competitive positioning and global reach.
In August, in a strategic move to capitalize on India's burgeoning digital economy, Equinix announced a $42 million investment to establish its fourth IBX data center in Mumbai. This new facility, aptly named MB4, is poised to address the escalating demand for cutting-edge data centers and interconnection services while supporting both local and overseas businesses in their digital transformation endeavors.
Equinix's expansion is not confined to India. The company's strategic plans extend further, with recent announcements to enter the promising markets of Malaysia and Indonesia to facilitate the expansion of businesses in these emerging economies. With an impressive network of 250 data centers across 71 metros worldwide, Equinix is well-poised to benefit from the high demand for inter-connected data center space amid rising enterprise cloud adoption and customers’ digital demand.
Encouragingly, Equinix’s robust balance sheet position has enabled it to capitalize on long-term growth opportunities. It had $6.5 billion of available liquidity as of Jun 30, 2023. Its net leverage ratio was 3.6, and the weighted average maturity was 8.1 years as of Jun 30, 2023. Moreover, as of the second-quarter end, the company enjoyed investment-grade credit ratings of Baa2 from Moody’s, BBB rating from S&P Global Ratings and BBB+ from Fitch Ratings, rendering it favorable access to the debt market.
Solid dividends are a huge attraction for REIT investors, and EQIX has remained committed to that. In February 2023, concurrent with the fourth-quarter 2022 earnings release, Equinix’s board of directors announced a 10% sequential hike in its quarterly cash dividend from $3.10 per share to $3.41 and has maintained this payment subsequently. It increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 8.40%. Such efforts boost investors’ confidence in the stock.
The Zacks Consensus Estimate for Welltower’s current-year FFO per share has moved 1.4% northward over the past month to $3.53.
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 month to $2.83.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Equinix (EQIX) Shares Rally 15% YTD: Will the Trend Last?
Shares of Equinix (EQIX - Free Report) , carrying a Zacks Rank #3 (Hold) currently, have risen 15.1% year to date against the real estate market’s fall of 1.8%.
Earlier this month, this global digital infrastructure company reported second-quarter 2023 adjusted funds from operations (AFFO) per share of $8.04, which surpassed the Zacks Consensus Estimate of $7.51. The figure improved 6.1% from the prior-year quarter. Its results reflected steady growth in colocation and inter-connection revenues amid the strong demand for digital infrastructure.
EQIX also raised its AFFO per share guidance for 2023. For the current year, AFFO per share is estimated between $31.51 and $32.15, revised upward from the prior-guided range of $31.15-$32.00. This suggests a 7-9% increase from the previous year.
Image Source: Zacks Investment Research
Let us now decipher the factors behind the surge in the stock price and also check whether this trend will last or not.
The need for data center infrastructure has stayed strong due to the expansion of cloud computing, the Internet of Things and Big Data. Additionally, there is increased demand for third-party IT infrastructure. Furthermore, the rise of AI, autonomous vehicles and virtual/augmented reality markets has established a sturdy foundation for data centers.
Amid this, Equinix’s geographically diverse portfolio of International Business Exchanges (“IBX”) data centers is expected to benefit from enterprises’ increasing dependence on technology and the expedited implementation of digital transformation strategies.
Moreover, the company has a recurring revenue model, which comprises colocation, related interconnection and managed IT infrastructure services. This ensures a stable cash flow generation for the company and aids top-line growth.
In the second quarter, recurring revenues came in at $1.92 billion, up 12.3% from the year-ago quarter. Moreover, revenues from the Americas, EMEA and the Asia Pacific rose 7.1%, 14.6% and 14.2% to $889.7 million, $686.8 million and $441.9 million, year over year, respectively.
Equinix has been focusing on the expansion of data center capacity in key markets and strengthening its competitive positioning and global reach.
In August, in a strategic move to capitalize on India's burgeoning digital economy, Equinix announced a $42 million investment to establish its fourth IBX data center in Mumbai. This new facility, aptly named MB4, is poised to address the escalating demand for cutting-edge data centers and interconnection services while supporting both local and overseas businesses in their digital transformation endeavors.
Equinix's expansion is not confined to India. The company's strategic plans extend further, with recent announcements to enter the promising markets of Malaysia and Indonesia to facilitate the expansion of businesses in these emerging economies. With an impressive network of 250 data centers across 71 metros worldwide, Equinix is well-poised to benefit from the high demand for inter-connected data center space amid rising enterprise cloud adoption and customers’ digital demand.
Encouragingly, Equinix’s robust balance sheet position has enabled it to capitalize on long-term growth opportunities. It had $6.5 billion of available liquidity as of Jun 30, 2023. Its net leverage ratio was 3.6, and the weighted average maturity was 8.1 years as of Jun 30, 2023. Moreover, as of the second-quarter end, the company enjoyed investment-grade credit ratings of Baa2 from Moody’s, BBB rating from S&P Global Ratings and BBB+ from Fitch Ratings, rendering it favorable access to the debt market.
Solid dividends are a huge attraction for REIT investors, and EQIX has remained committed to that. In February 2023, concurrent with the fourth-quarter 2022 earnings release, Equinix’s board of directors announced a 10% sequential hike in its quarterly cash dividend from $3.10 per share to $3.41 and has maintained this payment subsequently. It increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 8.40%. Such efforts boost investors’ confidence in the stock.
Stocks to Consider
Some better-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 (Buy). 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 1.4% northward over the past month to $3.53.
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 month to $2.83.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.