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Is it Wise to Retain Equinix Stock in Your Portfolio Now?
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Equinix’s (EQIX - Free Report) portfolio is well-poised to benefit from the high demand for inter-connected data center space as enterprises and service providers continue to integrate artificial intelligence (AI) into their strategies and offerings and advance their digital transformation agendas. However, a competitive landscape from carrier-neutral data centers and a debt burden in a high interest rate environment raise concerns.
What’s Aiding Equinix?
In this increasing total addressable market for data centers, Equinix is expanding its International Business Exchanges (“IBX”) data centers globally and gaining traction among tech companies looking for data management.
EQIX is strengthening its competitive positioning and global reach by focusing on acquisitions and developments. Equinix’s total number of IBX data center facilities reached 264 as of June 30, 2024.
Moreover, Equinix has an encouraging development pipeline. As of the end of the second quarter of 2024, it had 54 major builds underway across 36 markets in 24 countries, including 15 xScale builds representing more than 11,000 cabinets of retail capacity and more than 30 megawatts of xScale capacity through the end of 2024.
The company has a recurring revenue model, which comprises colocation, related interconnection and managed IT infrastructure services. Equinix generated 36% of the recurring revenues from its 50 largest customers in the three and six months ended June 30, 2024. This ensures a stable cash flow generation for the company and aids top-line growth.
Equinix’s robust balance sheet position enables it to capitalize on long-term growth opportunities. As of June 30, 2024, the company’s liquidity totaled $6.4 billion. It enjoys investment-grade credit ratings of Baa2 from Moody’s, BBB rating from S&P Global Ratings and BBB+ from Fitch Ratings as of the end of the second quarter of 2024, rendering it favorable access to the debt market.
Solid dividend payouts remain the biggest attraction for REIT investors, and Equinix has remained committed to that. The company has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 11.52%. Such efforts boost investors’ confidence in the stock. Given a robust operating platform, our year-over-year growth projection of 10.8% for 2024 adjusted funds from operations (AFFO) and a healthy financial position, EQIX’s dividend distribution is expected to be sustainable over the long run.
EQIX’s Stock Performance
Although shares of this Zacks Rank #3 (Hold) company have gained 8.5% over the past three months, the increase is narrower than the real estate market’s growth of 13.5%. Analysts seem bullish on EQIX, with the Zacks Consensus Estimate for 2024 funds from operations (FFO) per share being revised 12 cents upward over the past month to $35.10.
Image Source: Zacks Investment Research
What’s Hurting Equinix?
However, Equinix competes with Internet data centers operated by established communications carriers as well as REITs, including Digital Realty Trust. In addition to competing with neutral colocation providers, the company competes with traditional colocation providers, Internet service providers and Web-hosting facilities.
Considering the strong growth potential, competition is expected to increase from existing players and the entry of new players into the space. The increased competition is likely to lead to aggressive pricing policies, making Equinix vulnerable to pricing pressure.
Moreover, a high interest rate environment in the near term will lead to high borrowing costs for the company, affecting its ability to purchase or develop real estate. As of June 30, 2024, Equinix’s total debt principal outstanding was nearly $16.68 billion. Our estimate indicates a year-over-year increase of 8.2% in the company’s 2024 interest expenses.
The Zacks Consensus Estimate for American Tower’s 2024 FFO per share of $10.46 indicates a 6% 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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Is it Wise to Retain Equinix Stock in Your Portfolio Now?
Equinix’s (EQIX - Free Report) portfolio is well-poised to benefit from the high demand for inter-connected data center space as enterprises and service providers continue to integrate artificial intelligence (AI) into their strategies and offerings and advance their digital transformation agendas. However, a competitive landscape from carrier-neutral data centers and a debt burden in a high interest rate environment raise concerns.
What’s Aiding Equinix?
In this increasing total addressable market for data centers, Equinix is expanding its International Business Exchanges (“IBX”) data centers globally and gaining traction among tech companies looking for data management.
EQIX is strengthening its competitive positioning and global reach by focusing on acquisitions and developments. Equinix’s total number of IBX data center facilities reached 264 as of June 30, 2024.
Moreover, Equinix has an encouraging development pipeline. As of the end of the second quarter of 2024, it had 54 major builds underway across 36 markets in 24 countries, including 15 xScale builds representing more than 11,000 cabinets of retail capacity and more than 30 megawatts of xScale capacity through the end of 2024.
The company has a recurring revenue model, which comprises colocation, related interconnection and managed IT infrastructure services. Equinix generated 36% of the recurring revenues from its 50 largest customers in the three and six months ended June 30, 2024. This ensures a stable cash flow generation for the company and aids top-line growth.
Equinix’s robust balance sheet position enables it to capitalize on long-term growth opportunities. As of June 30, 2024, the company’s liquidity totaled $6.4 billion. It enjoys investment-grade credit ratings of Baa2 from Moody’s, BBB rating from S&P Global Ratings and BBB+ from Fitch Ratings as of the end of the second quarter of 2024, rendering it favorable access to the debt market.
Solid dividend payouts remain the biggest attraction for REIT investors, and Equinix has remained committed to that. The company has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 11.52%. Such efforts boost investors’ confidence in the stock. Given a robust operating platform, our year-over-year growth projection of 10.8% for 2024 adjusted funds from operations (AFFO) and a healthy financial position, EQIX’s dividend distribution is expected to be sustainable over the long run.
EQIX’s Stock Performance
Although shares of this Zacks Rank #3 (Hold) company have gained 8.5% over the past three months, the increase is narrower than the real estate market’s growth of 13.5%. Analysts seem bullish on EQIX, with the Zacks Consensus Estimate for 2024 funds from operations (FFO) per share being revised 12 cents upward over the past month to $35.10.
Image Source: Zacks Investment Research
What’s Hurting Equinix?
However, Equinix competes with Internet data centers operated by established communications carriers as well as REITs, including Digital Realty Trust. In addition to competing with neutral colocation providers, the company competes with traditional colocation providers, Internet service providers and Web-hosting facilities.
Considering the strong growth potential, competition is expected to increase from existing players and the entry of new players into the space. The increased competition is likely to lead to aggressive pricing policies, making Equinix vulnerable to pricing pressure.
Moreover, a high interest rate environment in the near term will lead to high borrowing costs for the company, affecting its ability to purchase or develop real estate. As of June 30, 2024, Equinix’s total debt principal outstanding was nearly $16.68 billion. Our estimate indicates a year-over-year increase of 8.2% in the company’s 2024 interest expenses.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are American Tower (AMT - 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 American Tower’s 2024 FFO per share of $10.46 indicates a 6% 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.