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Key Factors Why Equinix's (EQIX) Shares Jumped 20.4% QTD

Equinix, Inc.’s EQIX shares have jumped 20.4% in the quarter-to-date period compared with the real estate market’s growth of 6.2%.

This global digital infrastructure company reported third-quarter 2022 adjusted funds from operations (AFFO) per share of $7.73, surpassing the Zacks Consensus Estimate of $7.19. The figure grew 11.4% from the prior-year quarter. 

Its quarterly results reflected steady growth in colocation and inter-connection revenues.

Management also raised its AFFO per share guidance for 2022. It estimates the same to lie between $29.10 and $29.32, indicating a 7-8% increase from the prior year. Earlier, the guided range was $28.77-$29.10. The Zacks Consensus Estimate for the same is currently pegged at $29.24.

Analysts, too, seem bullish about this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for the company’s 2022 FFO per share has moved marginally upward over the past month, indicating a favorable outlook for EQIX.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Let us decipher the factors behind the surge in the stock price.

The growing reliance on technology and acceleration in digital transformation strategies by enterprises have led to a rise in demand for data centers, benefitting data center REITs like Equinix.

The company has a recurring revenue model that comprises colocation, related interconnection and managed IT infrastructure services. The customers are billed at fixed rates on a recurring basis through the life of the respective contracts. This ensures a stable cashflow generation for the company and aids top-line growth. In third-quarter 2022, recurring revenues increased 11.8% year over year to $1.75 billion.

Also, revenues from the Americas, EMEA and the Asia Pacific rose 10.9%, 8.5% and 9.7% to $846.2 million, $591.8 million and $402.7 million, respectively, in the third quarter, aiding the top-line growth.

Of late, Equinix has been very active on the acquisition and expansion front to meet the global need for data centers. It has been amplifying its global footprint through the expansion of its International Business Exchange (IBX) data centers.

As part of its efforts to expand in the Asia-Pacific region, in October 2022, EQIX unveiled plans for a $74 million IBX data center in Jakarta to capitalize on the country’s growing digital needs.

Embarking upon its second venture into the Association of Southeast Asian Nations (“ASEAN”), the company announced plans to build a new IBX data center in Malaysia’s Nusajaya Tech Park in Iskandar, Johor.

Malaysia is one of the top three colocation markets in ASEAN. The growing demand and investment from hyperscalers and cloud service providers, as well as national policies in favor of digital growth in the Malaysian market, make Equinix’s move a strategic fit.

Moreover, Equinix’s robust balance-sheet position has enabled it to capitalize on long-term growth opportunities. It had $6.4 billion of liquidity as of Sep 30, 2022. As of the third-quarter end, the company enjoyed investment-grade credit ratings of Baa2 from Moody’s, BBB rating from S&P Global Ratings and BBB+ from Fitch Ratings, rendering it favorable access to the debt market.

Further, this October, S&P Global Ratings affirmed its rating of BBB and increased its debt tolerance by one leverage turn.

From the environmental, social, and governance (ESG) perspective, Equinix recently unveiled plans to reduce its overall power use by increasing operating temperature ranges within its data centers. It is the first operator of colocation data centers to introduce such efficiency initiatives.

The company expects to operate its facilities close to 27°C (80°F) across its global data center portfolio in line with the globally accepted boundaries of the A1A standards from the American Society of Heating, Refrigerating and Air-Conditioning Engineers.

Over time, this initiative will help thousands of Equinix customers to reduce the Scope 3 carbon emissions associated with their data center operations.

Solid dividends are a huge attraction for REIT investors, and EQIX has remained committed to that, even during the pandemic. It has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 8.39%. Such efforts boost investors’ confidence in the stock.

Stocks to Consider

Some better-ranked stocks from the REIT sector are VICI Properties VICI, Lamar Advertising LAMR and Chatham Lodging Trust REIT CLDT, 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 VICI Properties’ current-year FFO per share is currently pegged at $1.92.

The Zacks Consensus Estimate for Lamar Advertising’s 2022 FFO per share presently stands at $7.34.

The Zacks Consensus Estimate for Chatham Lodging Trust’s ongoing year’s FFO per share is pegged at $1.17, presently.

Note: Anything related to earnings presented in this write-up represent FFO — a widely used metric to gauge the performance of REITs.

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