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Here's Why You Should Retain Equinix (EQIX) Stock for Now
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Equinix, Inc. (EQIX - Free Report) has been benefiting from the robust demand for data center infrastructure amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies. Growth in cloud computing, the Internet of Things and the elevated demand for third-party IT infrastructure have backed the upside.
The demand for high-performing data centers is anticipated to increase in the coming years due to the exponential rise in data traffic. Equinix is likely to capitalize on this positive trend, aiding long-term growth.
The company has a recurring revenue model comprising colocation, related interconnection and managed IT infrastructure services. This assures stable cash flow generation. Over the last three years, more than 90% of the total revenues were recurring in nature. EQIX generated 37% of recurring revenues from its 50 largest customers during the six months ended Jun 30, 2023. For the current year, we estimate recurring revenues to increase 13.4% on a year-over-year basis.
Equinix has been focusing on the expansion of data center capacity in key markets and strengthening its competitive positioning and global reach. This August, the company announced its fourth IBX data center in Mumbai with an investment of $42 million. The move is aimed at tapping the growing digital market in India.
In the second quarter of 2023, Equinix added 12 new projects, including new IBX data center builds in Lisbon, Monterrey and Mumbai. Moreover, Equinix has an encouraging development pipeline, which bodes well for its long-term growth. As of the end of the second quarter of 2023, it had 53 major projects in progress across 40 metros in 24 countries, including 11 xScale builds that are expected to deliver around 90 megawatts of capacity once opened.
Equinix’s financial policy approach underlines a disciplined debt and equity funding strategy to support organic and acquisition-driven growth. As of Jun 30, 2023, the company’s liquidity totaled $6.5 billion. Its net leverage ratio was 3.6, and the weighted average maturity was 8.1 years as of Jun 30, 2023.
Solid dividends are a huge attraction for REIT investors, and EQIX has remained committed to that. It has 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. Check Equinix’s dividend history here.
Shares of this Zacks Rank #3 (Hold) company have risen 11.8% in the past six months against the real estate market’s decline of 0.5%.
Image Source: Zacks Investment Research
However, considering the strong growth potential of this industry, competition is expected to increase from existing players and the entry of new players into the space. The increased competition is likely to lead to aggressive pricing policies, making Equinix vulnerable to pricing pressure.
Equinix’s significant debt obligations in a high-interest-rate environment are worrisome. Also, high borrowing costs due to high interest rates could affect its ability to purchase or develop real estate. Our estimate indicates a year-over-year increase of 9.3% in interest expenses in the current year.
The Zacks Consensus Estimate for Welltower’s 2023 FFO per share has been raised marginally over the past week to $3.54.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past month to $12.88.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 3.3% upward over the past month to $1.26.
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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Here's Why You Should Retain Equinix (EQIX) Stock for Now
Equinix, Inc. (EQIX - Free Report) has been benefiting from the robust demand for data center infrastructure amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies. Growth in cloud computing, the Internet of Things and the elevated demand for third-party IT infrastructure have backed the upside.
The demand for high-performing data centers is anticipated to increase in the coming years due to the exponential rise in data traffic. Equinix is likely to capitalize on this positive trend, aiding long-term growth.
The company has a recurring revenue model comprising colocation, related interconnection and managed IT infrastructure services. This assures stable cash flow generation. Over the last three years, more than 90% of the total revenues were recurring in nature. EQIX generated 37% of recurring revenues from its 50 largest customers during the six months ended Jun 30, 2023. For the current year, we estimate recurring revenues to increase 13.4% on a year-over-year basis.
Equinix has been focusing on the expansion of data center capacity in key markets and strengthening its competitive positioning and global reach. This August, the company announced its fourth IBX data center in Mumbai with an investment of $42 million. The move is aimed at tapping the growing digital market in India.
In the second quarter of 2023, Equinix added 12 new projects, including new IBX data center builds in Lisbon, Monterrey and Mumbai. Moreover, Equinix has an encouraging development pipeline, which bodes well for its long-term growth. As of the end of the second quarter of 2023, it had 53 major projects in progress across 40 metros in 24 countries, including 11 xScale builds that are expected to deliver around 90 megawatts of capacity once opened.
Equinix’s financial policy approach underlines a disciplined debt and equity funding strategy to support organic and acquisition-driven growth. As of Jun 30, 2023, the company’s liquidity totaled $6.5 billion. Its net leverage ratio was 3.6, and the weighted average maturity was 8.1 years as of Jun 30, 2023.
Solid dividends are a huge attraction for REIT investors, and EQIX has remained committed to that. It has 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. Check Equinix’s dividend history here.
Shares of this Zacks Rank #3 (Hold) company have risen 11.8% in the past six months against the real estate market’s decline of 0.5%.
Image Source: Zacks Investment Research
However, considering the strong growth potential of this industry, competition is expected to increase from existing players and the entry of new players into the space. The increased competition is likely to lead to aggressive pricing policies, making Equinix vulnerable to pricing pressure.
Equinix’s significant debt obligations in a high-interest-rate environment are worrisome. Also, high borrowing costs due to high interest rates could affect its ability to purchase or develop real estate. Our estimate indicates a year-over-year increase of 9.3% in interest expenses in the current year.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Welltower (WELL - Free Report) , SBA Communications (SBAC - Free Report) and Americold Realty Trust (COLD - Free Report) , each carrying 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 2023 FFO per share has been raised marginally over the past week to $3.54.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past month to $12.88.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 3.3% upward over the past month to $1.26.
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.