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Factors Setting the Tone for Equinix (EQIX) in Q2 Earnings

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Equinix, Inc. (EQIX - Free Report) is likely to report second-quarter 2019 earnings results around Jul 31, after the market closes. The company’s results will likely reflect year-over-year growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this global connectivity leader delivered a positive surprise of 6.25% in terms of adjusted FFO per share. This upside primarily stemmed from robust top-line growth and solid operating performance, partially offset by an elevated cost of revenues.

The company witnessed a remarkable streak of beating earnings estimates, over the last four quarters. In fact, Equinix beat the Zacks Consensus Estimate in each of the trailing four quarters, the average positive beat being 4.47%.

Equinix, Inc. Price and EPS Surprise

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

Factors at Play

According to a market study published by Equinix, the capacity for private data exchange is projected to be around 10 times faster than public Internet traffic by 2021. Hence, the company is aimed at fortifying its inter-connection services and networks.

In fact, during the quarter under review, the company strengthened its global inter-connection platform — Platform Equinix — by expanding connectivity service delivered via Equinix Cloud Exchange Fabric (ECX Fabric). This will facilitate connections among all of its 37 ECX Fabric markets, spanning across five continents.

Accordingly, Equinix’s second-quarter recurring revenues from its inter-connection business are projected to be up 10.6% year over year to $219 million. Further, the Zacks Consensus Estimate for recurring revenues from colocation business is pinned at $1,003 million, depicting 9.7% growth from the prior-year quarter.

In the second quarter, Equinix continued expanding its international footprint in strategic markets and strengthening the company’s global inter-connection platform. Specifically, in April, the company completed the acquisition of Switch Datacenters' AMS1 data-center business in Amsterdam, the Netherlands, in an all-cash transaction of $34 million.The purchase is a strategic fit as the facility will cater to the growing demand for digital infrastructure connectivity in the region as well as the broader European markets.

Additionally, in April, Equinix announced the collaboration of HFW with the company’s global interconnection platform — Platform Equinix — to gain scale and make HFW digital ready. Further, by banking on Equinix for its data-center needs, HFW has unlocked valuable internal resources that can be used for development of value-added services on top of its platform. 

Through these disciplined expansion efforts, the company is well poised to witness growth in its geographical revenues. Equinix’s revenues from its European operations are expected to improve around 15% year over year to $440 million. Furthermore, revenues from the Asia Pacific and the United States are pinned at $293 million and $653 million, calling for year-over-year improvement of 12.3% and 5.7%, respectively.

However, fierce competition from established Internet data-center operators and hyperscale providers might depress the company’s margins and revenues. In fact, the weighted average price per cabinet (MMR per cabinet) in Europe is estimated to be $1,374, down from the prior-quarter’s reported tally of $1,395.

Moreover, prior to the second-quarter earnings release, the company has been witnessing downward estimate revisions. As such, the Zacks Consensus Estimate of FFO per share for the quarter under review has been revised marginally downward to $5.57 over the past month, reflecting analysts’ bearish sentiments. Nonetheless, it represents year-over-year growth of 3.7%.

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 favorable 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 -1.94%

Zacks Rank: Equinix carries a Zacks Rank of 3, currently.

Stocks That Warrant a Look

CyrusOne Inc. (CONE - Free Report) , scheduled to release earnings on Jul 31, has an Earnings ESP of +1.37% and carries a Zacks Rank #3, at present.

Mack-Cali Realty Corporation (CLI - Free Report) , slated to report quarterly figures on Aug 7, has an Earnings ESP of +1.24% and carries a Zacks Rank of 3, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Healthcare Realty Trust Incorporated (HR - Free Report) , set to release June-end quarter results on Jul 30, has an Earnings ESP of +0.72% and currently holds 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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