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Digital Realty (DLR) Up 26.8% in 6 Months: Will the Trend Last?
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Shares of Digital Realty (DLR - Free Report) , currently carrying a Zacks Rank #3 (Hold), have soared 26.8% in the past six months against the industry’s decline of 9.1%.
The rising demand for high-performing data centers amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies has been one of the key forces driving the performance of data center real estate investment trusts (REITs) like Digital Realty.
Against this backdrop, the company’s efforts to expand its presence globally to meet this growing demand and capital-recycling efforts are likely to have enabled it to ride the growth curve thus far.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price.
Data center infrastructure demand has remained robust globally amid strong demand drivers such as cloud computing, enterprise modernization and the rise in content streaming and social media usage. Also, emerging demand drivers like artificial intelligence (AI), the Internet of Things, edge computing and 5G technology are likely to have fueled the rise.
Digital Realty’s portfolio of data centers located all over North America, Europe, South America, Asia, Australia and Africa is expected to have capitalized on this upbeat trend, contributing to the increased optimism surrounding its stock.
Moreover, with demand for high-performing data centers expected to increase in the coming years owing to growth in AI, autonomous vehicles and virtual/augmented reality, Digital Realty is well-positioned for growth.
Digital Realty's efforts to broaden the range of its cloud-based offerings seem encouraging. This September, it announced that it will provide connectivity through Oracle Cloud Infrastructure FastConnect to the newly launched Oracle EU Sovereign Cloud. The interconnection offering is brought about by the company’s proprietary interconnection and orchestration solution — ServiceFabric™.
This will help customers establish secure and reliable connectivity to the Oracle EU Sovereign Cloud regions in Frankfurt and Madrid. They will also be able to interconnect their Oracle EU Sovereign Cloud-based applications and workloads to other cloud platforms via Digital Realty.
This data center REIT is expanding its footprint globally via strategic acquisitions and development activities to meet this growing demand. Earlier this month, Digital Realty expanded into the Italian market by purchasing land in Rome and commenced the pre-development planning for a new colocation and connectivity hub. The move further strengthens the company’s position as the leading provider of digital infrastructure capacity in the Mediterranean region, a key gateway between Europe, Africa, the Middle East and Asia, making it a strategic fit.
The company’s capital-recycling moves highlight its prudent capital management practices, preserve balance sheet strength and bank on long-term growth scopes. Per its second-quarter 2023 Earnings Presentation, DLR completed asset sales and stabilized joint ventures of $2.2 billion from the beginning of this year through Jul 27.
Solid dividends are a huge attraction for REIT investors, and DLR has remained committed to that. The company has increased its dividend four times in the last five years and the five-year annualized dividend growth rate is 4.05%. Such efforts boost investors’ confidence in the stock. Given the company’s solid operating platform and balance sheet management efforts, we expect the dividend payment to be sustainable over the long run.
Nonetheless, given the industry's strong growth potential, intense competition from existing and new players could prompt competitors to resort to aggressive pricing policies, making DLR vulnerable to pricing pressure. Also, high interest rates pose a concern for the company.
The Zacks Consensus Estimate for Welltower’s 2023 FFO per share has been raised marginally over the past month to $3.55.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past month to $12.90.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 2.4% over the past month to $1.26.
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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Digital Realty (DLR) Up 26.8% in 6 Months: Will the Trend Last?
Shares of Digital Realty (DLR - Free Report) , currently carrying a Zacks Rank #3 (Hold), have soared 26.8% in the past six months against the industry’s decline of 9.1%.
The rising demand for high-performing data centers amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies has been one of the key forces driving the performance of data center real estate investment trusts (REITs) like Digital Realty.
Against this backdrop, the company’s efforts to expand its presence globally to meet this growing demand and capital-recycling efforts are likely to have enabled it to ride the growth curve thus far.
Image Source: Zacks Investment Research
Let us decipher the factors behind the surge in the stock price.
Data center infrastructure demand has remained robust globally amid strong demand drivers such as cloud computing, enterprise modernization and the rise in content streaming and social media usage. Also, emerging demand drivers like artificial intelligence (AI), the Internet of Things, edge computing and 5G technology are likely to have fueled the rise.
Digital Realty’s portfolio of data centers located all over North America, Europe, South America, Asia, Australia and Africa is expected to have capitalized on this upbeat trend, contributing to the increased optimism surrounding its stock.
Moreover, with demand for high-performing data centers expected to increase in the coming years owing to growth in AI, autonomous vehicles and virtual/augmented reality, Digital Realty is well-positioned for growth.
Digital Realty's efforts to broaden the range of its cloud-based offerings seem encouraging. This September, it announced that it will provide connectivity through Oracle Cloud Infrastructure FastConnect to the newly launched Oracle EU Sovereign Cloud. The interconnection offering is brought about by the company’s proprietary interconnection and orchestration solution — ServiceFabric™.
This will help customers establish secure and reliable connectivity to the Oracle EU Sovereign Cloud regions in Frankfurt and Madrid. They will also be able to interconnect their Oracle EU Sovereign Cloud-based applications and workloads to other cloud platforms via Digital Realty.
This data center REIT is expanding its footprint globally via strategic acquisitions and development activities to meet this growing demand. Earlier this month, Digital Realty expanded into the Italian market by purchasing land in Rome and commenced the pre-development planning for a new colocation and connectivity hub. The move further strengthens the company’s position as the leading provider of digital infrastructure capacity in the Mediterranean region, a key gateway between Europe, Africa, the Middle East and Asia, making it a strategic fit.
The company’s capital-recycling moves highlight its prudent capital management practices, preserve balance sheet strength and bank on long-term growth scopes. Per its second-quarter 2023 Earnings Presentation, DLR completed asset sales and stabilized joint ventures of $2.2 billion from the beginning of this year through Jul 27.
Solid dividends are a huge attraction for REIT investors, and DLR has remained committed to that. The company has increased its dividend four times in the last five years and the five-year annualized dividend growth rate is 4.05%. Such efforts boost investors’ confidence in the stock. Given the company’s solid operating platform and balance sheet management efforts, we expect the dividend payment to be sustainable over the long run.
Nonetheless, given the industry's strong growth potential, intense competition from existing and new players could prompt competitors to resort to aggressive pricing policies, making DLR vulnerable to pricing pressure. Also, high interest rates pose a concern for the company.
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) at present. 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 month to $3.55.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past month to $12.90.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 2.4% over the past month to $1.26.
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.