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Iron Mountain (IRM) Rises 53.4% YTD: Will the Trend Last?
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Shares of Iron Mountain Incorporated (IRM - Free Report) have gained 53.4% year to date compared with the industry’s growth of 1.2%.
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. It is likely to continue benefiting from the healthy revenue management and volume trends in the quarters ahead. The company’s accretive buyouts and data center business expansion efforts are likely to have paid off well.
Last week, Iron Mountain came up with a solid second-quarter 2024 performance. The company, carrying a Zacks Rank #3 (Hold) at present, reported adjusted funds from operations (AFFO) per share of $1.08, surpassing the Zacks Consensus Estimate of $1.06. Moreover, the figure improved 10.2% on a year-over-year basis. The results reflected solid performances in the storage and service segments and the data center business.
Image Source: Zacks Investment Research
Let’s find out the factors behind the surge in the stock price and analyze whether this trend will last or not.
Iron Mountain enjoys a stable and resilient core storage and records management business. 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 10.1% year over year in the second quarter of 2024. The benefit was driven by revenue management in its Global RIM Business segment, as well as by growth in its Global Data Center Business segment, on the back of lease commencements.
The company has a diversified tenant and revenue base and serves more than 240,000 clients across different industries and geographical locations. Most importantly, no single customer accounted for more than 1% of its revenues in 2023, reflecting a well-diversified revenue generation base.
In the second quarter of 2024, IRM recorded a 92.8% retention rate for its records management business. This is likely to support the company’s cash flows in the quarter ahead.
Iron Mountain is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. It is making organic growth efforts along with expansion projects and developments. Such moves will enable the company to capitalize on strong demand for connectivity, interconnection and colocation space and drive leasing activity.
In the second quarter, the company reported data center revenue growth of 29.4%. It leased 66 megawatts of data center capacity in the second quarter of 2024, totaling 97 megawatts in the first six months of 2024. Due to the company’s strong pipeline, management is confident in exceeding its original projection of 100 megawatts and now expect to lease 130 megawatts for the year. Moreover, it leased 124 megawatts of data center capacity in 2023.
Iron Mountain’s healthy balance sheet position, along with ample financial flexibility, has enabled it to capitalize on long-term growth opportunities. As of Jun 30, 2024, it had a total liquidity of approximately $2.3 billion. It has no significant debt maturities until 2027 and 80% of its rate debt was fixed. Its net total lease-adjusted leverage was 5.0X in the second quarter of 2024, which was the lowest level since before the company’s REIT conversion in 2014.
Additionally, its current cash flow growth is projected at 4.46% compared with the negative 5.32% expected for the industry. Also, a significant trailing 12-month return on equity compared with the industry’s average of 3.34% 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 2024, concurrent with its second-quarter 2024 earnings release, it announced a 10% hike in its cash dividend to 71.5 cents per share from 65 cents paid out earlier. Check Iron Mountain’s dividend history here.
Given its healthy operating platform and a lower-than-industry payout ratio and solid financial position, the increased dividend is likely to be sustainable in the forthcoming period.
However, competition from industry peers may lead to aggressive pricing pressure and lower margins, weighing on the company’s profitability. High interest rates add to its woes.
The Zacks Consensus Estimate for Lamar Advertising 2024 FFO per share of $8.08 indicates a an 8.2% increase year over year.
The Zacks Consensus Estimate for Cousins Properties 2024 FFO per share is pegged at $2.66, which suggests 1.5% year-over-year growth.
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 (IRM) Rises 53.4% YTD: Will the Trend Last?
Shares of Iron Mountain Incorporated (IRM - Free Report) have gained 53.4% year to date compared with the industry’s growth of 1.2%.
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. It is likely to continue benefiting from the healthy revenue management and volume trends in the quarters ahead. The company’s accretive buyouts and data center business expansion efforts are likely to have paid off well.
Last week, Iron Mountain came up with a solid second-quarter 2024 performance. The company, carrying a Zacks Rank #3 (Hold) at present, reported adjusted funds from operations (AFFO) per share of $1.08, surpassing the Zacks Consensus Estimate of $1.06. Moreover, the figure improved 10.2% on a year-over-year basis. The results reflected solid performances in the storage and service segments and the data center business.
Image Source: Zacks Investment Research
Let’s find out the factors behind the surge in the stock price and analyze whether this trend will last or not.
Iron Mountain enjoys a stable and resilient core storage and records management business. 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 10.1% year over year in the second quarter of 2024. The benefit was driven by revenue management in its Global RIM Business segment, as well as by growth in its Global Data Center Business segment, on the back of lease commencements.
The company has a diversified tenant and revenue base and serves more than 240,000 clients across different industries and geographical locations. Most importantly, no single customer accounted for more than 1% of its revenues in 2023, reflecting a well-diversified revenue generation base.
In the second quarter of 2024, IRM recorded a 92.8% retention rate for its records management business. This is likely to support the company’s cash flows in the quarter ahead.
Iron Mountain is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. It is making organic growth efforts along with expansion projects and developments. Such moves will enable the company to capitalize on strong demand for connectivity, interconnection and colocation space and drive leasing activity.
In the second quarter, the company reported data center revenue growth of 29.4%. It leased 66 megawatts of data center capacity in the second quarter of 2024, totaling 97 megawatts in the first six months of 2024. Due to the company’s strong pipeline, management is confident in exceeding its original projection of 100 megawatts and now expect to lease 130 megawatts for the year. Moreover, it leased 124 megawatts of data center capacity in 2023.
Iron Mountain’s healthy balance sheet position, along with ample financial flexibility, has enabled it to capitalize on long-term growth opportunities. As of Jun 30, 2024, it had a total liquidity of approximately $2.3 billion. It has no significant debt maturities until 2027 and 80% of its rate debt was fixed. Its net total lease-adjusted leverage was 5.0X in the second quarter of 2024, which was the lowest level since before the company’s REIT conversion in 2014.
Additionally, its current cash flow growth is projected at 4.46% compared with the negative 5.32% expected for the industry. Also, a significant trailing 12-month return on equity compared with the industry’s average of 3.34% 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 2024, concurrent with its second-quarter 2024 earnings release, it announced a 10% hike in its cash dividend to 71.5 cents per share from 65 cents paid out earlier. Check Iron Mountain’s dividend history here.
Given its healthy operating platform and a lower-than-industry payout ratio and solid financial position, the increased dividend is likely to be sustainable in the forthcoming period.
However, competition from industry peers may lead to aggressive pricing pressure and lower margins, weighing on the company’s profitability. High interest rates add to its woes.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Lamar Advertising (LAMR - Free Report) and Cousins Properties (CUZ - 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 Lamar Advertising 2024 FFO per share of $8.08 indicates a an 8.2% increase year over year.
The Zacks Consensus Estimate for Cousins Properties 2024 FFO per share is pegged at $2.66, which suggests 1.5% year-over-year growth.
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.