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Iron Mountain's (IRM) Stock Rises 27% YTD: Will the Trend Last?
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Shares of Iron Mountain Incorporated (IRM - Free Report) have gained 27% year to date against the industry’s fall of 5.7%.
This Boston, MA-based real estate investment trust (REIT) continues to benefit from its stable and resilient core storage and records management businesses, enabling it to ride the growth curve. The company’s acquisitions and data center business expansion efforts, backed by a robust balance sheet position, are likely to have paid off well.
This Zacks Ranks #2 (Buy) company, which entered into an agreement to acquire Regency Technologies for an initial price of $200 million earlier this month, reported third-quarter 2023 adjusted funds from operations (AFFO) per share of 99 cents, missing the Zacks Consensus Estimate by a whisker. However, the figure increased 1% year over year, attributable to improved adjusted EBITDA.
It also reaffirmed its current-year guidance for AFFO per share in the range of $3.91-$4.00. The Zacks Consensus Estimate for IRM’s current-year FFO per share is pegged at $3.97, within expectations.
Image Source: Zacks Investment Research
Let’s find out the factors behind the surge in the stock price and check whether the trend will last.
Iron Mountain enjoys a stable and resilient core storage and records management businesses. It 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. This paves the way for a steady stream of recurring revenues for the company.
Iron Mountain’s organic storage rental revenues increased 10% year over year in the third quarter, led by the Global RIM business growth of 8%.
The company has a diversified tenant and revenue base and serves more than 225,000 clients across different industries and locations. Most importantly, no single customer accounted for more than 1% of its revenues in 2022, reflecting a well-diversified revenue generation base.
In the third quarter of 2023, IRM recorded a 93% retention rate for its records management business. Likewise, it is also seeing strong customer retention in the global data center business. These factors are likely to support the company’s cash flows in the quarter ahead. We estimate a year-over-year increase of 11.1% in storage rental revenues this year. The metric is expected to witness robust growth of 8.9% and 9.7% in 2024 and 2025, respectively.
To supplement its storage segment performance, IRM has been expanding into its fast-growing businesses, especially the data center segment. The company is actively pursuing organic growth initiatives and expansion endeavors to capitalize on the strong demand for connectivity, interconnection and colocation space. This is likely to drive leasing activity in the upcoming period.
Notably, during the third quarter of 2023, IRM leased 65 megawatts of data center capacity. In the nine months ended Sep 30, 2023, the total leased capacity aggregated 120 megawatts, exceeding the company’s expected target of 80 megawatts for 2023.
Iron Mountain’s robust balance sheet position, along with ample financial flexibility, has enabled it to capitalize on long-term growth opportunities. As of Sep 30, 2023, it had total liquidity of more than $1.8 billion with no significant debt maturities until 2027. Its net total lease-adjusted leverage was 5.1X for the third quarter of 2023, which was the lowest level in a decade.
Additionally, its current cash flow growth is projected at 11.88% compared with the 8.10% expected for the industry. Also, a significant trailing 12-month return on equity compared with the industry’s average of 3.10% reflects its superiority in terms of utilizing shareholders’ funds over its peers.
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. Such efforts enhance shareholders’ wealth and boost investors’ confidence in the stock. Check Iron Mountain’s dividend history here.
Given the company’s healthy operating platform, our year-over-year AFFO growth projections of 4.6% for 2023, a lower-than-industry payout ratio and solid financial position, the latest dividend hike is likely to be sustainable over the long run.
Nonetheless, the fragmentation of the storage and information management services industry and a slowdown in the service business are concerning for the company. Also, a high interest rate environment adds to its woes.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past month to $7.69.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised 1.3% upward over the past month to $2.28.
The Zacks Consensus Estimate for Innovative Industrial’s current-year FFO per share has moved 2.3% northward over the past month to $9.08.
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's (IRM) Stock Rises 27% YTD: Will the Trend Last?
Shares of Iron Mountain Incorporated (IRM - Free Report) have gained 27% year to date against the industry’s fall of 5.7%.
This Boston, MA-based real estate investment trust (REIT) continues to benefit from its stable and resilient core storage and records management businesses, enabling it to ride the growth curve. The company’s acquisitions and data center business expansion efforts, backed by a robust balance sheet position, are likely to have paid off well.
This Zacks Ranks #2 (Buy) company, which entered into an agreement to acquire Regency Technologies for an initial price of $200 million earlier this month, reported third-quarter 2023 adjusted funds from operations (AFFO) per share of 99 cents, missing the Zacks Consensus Estimate by a whisker. However, the figure increased 1% year over year, attributable to improved adjusted EBITDA.
It also reaffirmed its current-year guidance for AFFO per share in the range of $3.91-$4.00. The Zacks Consensus Estimate for IRM’s current-year FFO per share is pegged at $3.97, within expectations.
Image Source: Zacks Investment Research
Let’s find out the factors behind the surge in the stock price and check whether the trend will last.
Iron Mountain enjoys a stable and resilient core storage and records management businesses. It 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. This paves the way for a steady stream of recurring revenues for the company.
Iron Mountain’s organic storage rental revenues increased 10% year over year in the third quarter, led by the Global RIM business growth of 8%.
The company has a diversified tenant and revenue base and serves more than 225,000 clients across different industries and locations. Most importantly, no single customer accounted for more than 1% of its revenues in 2022, reflecting a well-diversified revenue generation base.
In the third quarter of 2023, IRM recorded a 93% retention rate for its records management business. Likewise, it is also seeing strong customer retention in the global data center business. These factors are likely to support the company’s cash flows in the quarter ahead. We estimate a year-over-year increase of 11.1% in storage rental revenues this year. The metric is expected to witness robust growth of 8.9% and 9.7% in 2024 and 2025, respectively.
To supplement its storage segment performance, IRM has been expanding into its fast-growing businesses, especially the data center segment. The company is actively pursuing organic growth initiatives and expansion endeavors to capitalize on the strong demand for connectivity, interconnection and colocation space. This is likely to drive leasing activity in the upcoming period.
Notably, during the third quarter of 2023, IRM leased 65 megawatts of data center capacity. In the nine months ended Sep 30, 2023, the total leased capacity aggregated 120 megawatts, exceeding the company’s expected target of 80 megawatts for 2023.
Iron Mountain’s robust balance sheet position, along with ample financial flexibility, has enabled it to capitalize on long-term growth opportunities. As of Sep 30, 2023, it had total liquidity of more than $1.8 billion with no significant debt maturities until 2027. Its net total lease-adjusted leverage was 5.1X for the third quarter of 2023, which was the lowest level in a decade.
Additionally, its current cash flow growth is projected at 11.88% compared with the 8.10% expected for the industry. Also, a significant trailing 12-month return on equity compared with the industry’s average of 3.10% reflects its superiority in terms of utilizing shareholders’ funds over its peers.
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. Such efforts enhance shareholders’ wealth and boost investors’ confidence in the stock. Check Iron Mountain’s dividend history here.
Given the company’s healthy operating platform, our year-over-year AFFO growth projections of 4.6% for 2023, a lower-than-industry payout ratio and solid financial position, the latest dividend hike is likely to be sustainable over the long run.
Nonetheless, the fragmentation of the storage and information management services industry and a slowdown in the service business are concerning for the company. Also, a high interest rate environment adds to its woes.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are EastGroup Properties (EGP - Free Report) , Stag Industrial (STAG - Free Report) and Innovative Industrial Properties (IIPR - Free Report) , each carrying 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 EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past month to $7.69.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised 1.3% upward over the past month to $2.28.
The Zacks Consensus Estimate for Innovative Industrial’s current-year FFO per share has moved 2.3% northward over the past month to $9.08.
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.