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Iron Mountain (IRM) Shares Rally 17% YTD: Will the Trend Last?
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Shares of Iron Mountain Incorporated (IRM - Free Report) , carrying a Zacks Ranks #2 (Buy), have rallied 17.5% year to date against its industry’s fall of 4.8%.
Earlier this month, this Boston, MA-based real estate investment trust (REIT) reported second-quarter adjusted funds from operations (AFFO) per share of 94 cents, surpassing the Zacks Consensus Estimate by a whisker. Moreover, the figure improved 1.1% on a year-over-year basis, attributable to improved adjusted EBITDA. Results reflected the solid performance of the storage segment and the data center business.
The company also reaffirmed its outlook for 2023 AFFO per share in the range of $3.91-$4.00. The Zacks Consensus Estimate for the same is currently pegged at $3.96, which lies within the company’s guided range.
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.
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.
Additionally, Iron Mountain’s diversified tenant and revenue base across different industries and geographical locations is likely to pay off well. The company has enjoyed a consistent customer retention of approximately 98% over the years.
Storage rental revenues were $830.8 million in the second quarter, up 10.3% year over year. While service revenues fell 1.7% from the prior-year quarter to $527.2 million, it was up 4.5% sequentially. The adjusted EBITDA improved 4.6% year over year to $475.7 million in the quarter.
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 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, Iron Mountain 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. Based on the current leasing activity, it is poised to surpass its 2023 guidance of 80 megawatts.
On the balance sheet front, Iron Mountain had total liquidity of approximately $1.7 billion as of Jun 30, 2023 and a weighted-average maturity of 5.6 years. With this, it 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. Additionally, IRM’s current cash flow growth is projected at 11.88% compared with the 9.37% expected for the industry.
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.
However, the fragmentation of the storage and information management services industry and a slowdown in the service business are concerning for the company. Also, rising interest rates add to its woes.
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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Iron Mountain (IRM) Shares Rally 17% YTD: Will the Trend Last?
Shares of Iron Mountain Incorporated (IRM - Free Report) , carrying a Zacks Ranks #2 (Buy), have rallied 17.5% year to date against its industry’s fall of 4.8%.
Earlier this month, this Boston, MA-based real estate investment trust (REIT) reported second-quarter adjusted funds from operations (AFFO) per share of 94 cents, surpassing the Zacks Consensus Estimate by a whisker. Moreover, the figure improved 1.1% on a year-over-year basis, attributable to improved adjusted EBITDA. Results reflected the solid performance of the storage segment and the data center business.
The company also reaffirmed its outlook for 2023 AFFO per share in the range of $3.91-$4.00. The Zacks Consensus Estimate for the same is currently pegged at $3.96, which lies within the company’s guided range.
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.
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.
Additionally, Iron Mountain’s diversified tenant and revenue base across different industries and geographical locations is likely to pay off well. The company has enjoyed a consistent customer retention of approximately 98% over the years.
Storage rental revenues were $830.8 million in the second quarter, up 10.3% year over year. While service revenues fell 1.7% from the prior-year quarter to $527.2 million, it was up 4.5% sequentially. The adjusted EBITDA improved 4.6% year over year to $475.7 million in the quarter.
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 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, Iron Mountain 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. Based on the current leasing activity, it is poised to surpass its 2023 guidance of 80 megawatts.
On the balance sheet front, Iron Mountain had total liquidity of approximately $1.7 billion as of Jun 30, 2023 and a weighted-average maturity of 5.6 years. With this, it 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. Additionally, IRM’s current cash flow growth is projected at 11.88% compared with the 9.37% expected for the industry.
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.
However, the fragmentation of the storage and information management services industry and a slowdown in the service business are concerning for the company. Also, rising interest rates add to its woes.
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 also 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 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.