Yahoo Finance Iron Mountain (IRM) Rises 27.5% YTD: Will the Trend Last?
Shares of Iron Mountain Incorporated IRM have gained 27.5% year to date against the industry’s fall of 8.5%.
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.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share has moved marginally upward over the past two months to $4.45.
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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 7.4% year over year in the first 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 first quarter of 2024, IRM recorded a 92.9% retention rate for its records management business. This is likely to support the company’s cash flows in the quarter ahead. We estimate a year-over-year increase of 9.6% in storage rental revenues in 2024. For 2025 and 2026, the metric is expected to witness growth of 8.3% and 8.7%, respectively.
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 first quarter, the company attained data center revenue growth of 28.2%. It leased 30 megawatts of data center capacity in the first quarter of 2024. 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 Mar 31, 2024, it had a total liquidity of $2 billion. It has no significant debt maturities until 2027 and 76% of its net debt was fixed. Its net total lease-adjusted leverage was 5.1X in the first quarter of 2024, which was the lowest level in a decade.
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 3.08% 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 2023, concurrent with its second-quarter 2023 earnings release, it announced a 5.1% hike in its cash dividend to 65 cents per share from 61.85 cents paid out earlier. Check Iron Mountain’s dividend history here.
Given its healthy operating platform, our year-over-year adjusted AFFO growth projections of 7.1% for 2024, 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.
IRM currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Lamar Advertising LAMR and Americold Realty Trust, Inc. COLD, 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’s 2024 FFO per share of $8.03 indicates a 7.5% increase year over year.
The Zacks Consensus Estimate for Americold’s 2024 FFO per share is pegged at $1.44, which suggests 13.4% 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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