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Iron Mountain (IRM) to Post Q3 Earnings: What's in Store?

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Iron Mountain Inc. (IRM - Free Report) is set to release third-quarter 2018 results on Oct 25, before the market opens. The company’s results will likely reflect year-over-year growth in revenues and a decline in funds from operations (FFO) per share.

In the last reported quarter, this real estate investment trust’s (REIT) normalized FFO of 56 cents per share surpassed the Zacks Consensus Estimate of 53 cents. Results reflected decent storage rental revenues and margin expansion. Further, the adjusted FFO increased 5.8% year over year to $230 million.

Over the preceding four quarters, the company missed the FFO per share estimates in three occasions and beat in the other, resulting in an average negative surprise of 1.29%. This is depicted in the graph below:

Iron Mountain Incorporated Price and EPS Surprise
 

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

Factors to Consider

Demand for data centers are expected to have continued to experience a thriving market in the Jul-Sep quarter with growth in cloud computing, Internet of Things and big data, and an increasing number of companies opting for third-party IT infrastructure.

This provides substantial growth impetus to data-center REITs. At such times, Iron Mountain’s business model focusing on expansion in fast growing markets bodes well.

During the to-be-reported quarter, the company added data-center colocation and network services to its offering in the company's Schedule 36 vehicle contract with the General Services Administration (GSA), under Special Item Number 51-600 for Electronic Records Management Solutions. (Read more: Iron Mountain Adds Data-Center Services to GSA Schedule 36)

Further, the Zacks Consensus Estimate for third-quarter 2018 revenues from its storage segment is pinned at $658 million and represents a sequential increase of 11.5%. Also, total revenues from its North America data-management segment has increased sequentially at $102 million.  

Nonetheless, Iron Mountain’s Service revenues are expected to have remained modest due to shrinking activity rates as stored records are becoming less active. Also, recycled paper prices continue to fall. While recovery is anticipated to be slow in the near term, achieving top-line targets remains a challenge. In fact, the Zacks Consensus Estimate for third-quarter revenues from service and storage material segment of $398 million reflects a sequential decline of nearly 3%.

Furthermore, prior to the third-quarter earnings release, there is lack of any solid catalyst. As such, the Zacks Consensus Estimate of FFO per share for the quarter under review remained unchanged at 54 cents over the past month. Also, it represents a year-over-year decline of 1.82%.

Earnings Whispers

Here is what our quantitative model predicts:

Iron Mountain has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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

Earnings ESP: Iron Mountain’s Earnings ESP is +0.62%.

Zacks Rank: Iron Mountain currently carries a Zacks Rank of 3.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Liberty Property Trust (LPT - Free Report) , scheduled to release earnings on Oct 23, has an Earnings ESP of +0.66% and a Zacks Rank #3.

Welltower Inc. (WELL - Free Report) , slated to report Sep-end quarter results on Oct 30, has an Earnings ESP of +1.06% and a Zacks Rank of 3.

Public Storage (PSA - Free Report) , set to release quarterly figures on Oct 30, has an Earnings ESP of +0.27% and a Zacks Rank #3.

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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