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Key Factors to Impact Equinix (EQIX) This Earnings Season

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Equinix, Inc. (EQIX - Free Report) is set to report second-quarter 2018 earnings results on Aug 8, after the market closes. The company’s results will likely reflect year-over-year growth in its funds from operations (FFO) per share and revenues.

In the last reported quarter, this global connectivity leader delivered a positive surprise of 5.5% in terms of FFO per share. The uptick primarily stemmed from robust top-line growth and robust operating performance, partially offset by an elevated cost of revenues.

The company witnessed a remarkable streak of beating earnings estimates, especially when looking at the previous four reports. In fact, Equinix surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average positive beat of 7.3%.

Equinix, Inc. Price and EPS Surprise
 


Equinix, Inc. Price and EPS Surprise
| Equinix, Inc. Quote

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Equinix is a global provider of network-neutral data centers and Internet-exchange services for enterprises, content companies, systems integrators and network service providers.

Acquisitions have been a major growth driver for Equinix and helped expand the company’s data-center capacity in many of its key markets since 2003. In the second quarter as well, we anticipate acquisition deals to have further advanced the company’s position and boosted the top line. It completed the buyout of Infomart Dallas from ASB Real Estate Investments and another Australian data-center provider — Metronode.

While enterprises continue to migrate toward cloud and virtualization solutions, rising cost of owning date centers have also provided significant impetus for colocation space worldwide. In fact, per an article, the data-center collocation market is projected to witness a CAGR of 15.4% globally, through 2017 to 2023, and reach $73.8 billion at the end of the period. Amid these, Equinix’s efforts to expand its International Business Exchange (IBX) data centers globally are anticipated to have supported Q2 results.

In fact, the Zacks Consensus Estimate for its revenues is pegged at $1.26 billion for the quarter under review, reflecting projected growth of 18.3% from the year-ago period. For second-quarter 2018, Equinix expects revenues of $1.257-$1.267 billion.

Management anticipates the Q2 adjusted EBITDA to lie between $579 million and $589 million.

Nevertheless, we remain slightly cautious about the huge capital outlays, which might have dented Equinix’s June-end quarter profitability. It should be noted that, at the end of first-quarter 2018, the company had cash, cash equivalents and short-term investments of $2.1 billion, while its total debt principal outstanding was $11.2 billion as of Mar 31, 2018. Profitability in the to-be-reported quarter will likely reflect the impact of growing debt burden resulting from flaring up interest expenses.

Considering the strong growth potential in the data-center space, we expect heightened competition from existing players and entry of new players. In fact, mounting competition from established Internet data-center operators, such as AT&T (T - Free Report) , Verizon (VZ - Free Report) , Level 3 Communications and COLT, will have hurt product pricing in Q2, thereby, thwarting the company’s margins.

The company’s activities during the April-June quarter were inadequate to gain analyst confidence. In fact, the Zacks Consensus Estimate for FFO per share of $5.06 for the quarter witnessed a 0.8% downward revision over the past month. Nonetheless, the figure witnessed rise of 10.2% from the prior-year quarter.

Earnings Whispers

Our proven model does not conclusively show that Equinix is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a bullish Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here, as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Equinix has an Earnings ESP of +1.28%

Zacks Rank: Equinix’s Zacks Rank #4 (Sell). It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock With Favorable Combination

Here is a company that you may want to consider as our model shows that this stock has the right combination of elements to post an earnings beat:

LaSalle Hotel Properties , slated to release second-quarter results on Aug 9, has an Earnings ESP of +1.11% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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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