Is it Wise to Retain Equinix Stock in Your Portfolio Now?

Equinix’s EQIX portfolio is well-poised to benefit from the high demand for the 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 still elevated interest rate environment raise concerns.In November, Equinix announced its plans to establish a new data center in Singapore, with an initial investment of $260 million. This facility, featuring advanced liquid cooling, is designed to help global businesses in next-generation workloads, such as AI. The nine-story facility, referred to as SG6, is expected to open in the first quarter of 2027. It will also represent Equinix’s sixth International Business Exchange data center in Singapore. When fully built, the facility is expected to offer a capacity of 20 megawatts. SG6 will be incorporated into Equinix's global network, which includes 268 interconnected data centers, 59 of which are in the Asia-Pacific region, covering 73 metropolitan areas across 34 countries. This facility will provide customers with enhanced capacity, worldwide reach and seamless integration with interconnection and colocation services.In the past month, this Zacks Rank #3 (Hold) stock has risen 18% in the past three months, way ahead of the real estate market’s growth of 2.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Analysts also seem bullish on this stock. The Zacks Consensus Estimate revision trend for 2024 and 2025 FFO per share indicates a favorable outlook for the company, with estimates moving north over the past month.Image Source: Zacks Investment ResearchWhat’s Aiding Equinix?There is growing reliance on technology and acceleration in digital transformation strategies by enterprises that call for data exchanges. To meet this global need, Equinix is expanding its International Business Exchanges (“IBX”) data centers globally and is gaining traction among tech companies looking for data management. The demand for high-performing data centers will escalate in the years to come with the exponential rise in data traffic. This will require enterprises to engage data-center service providers such as Equinix. Increasing the total addressable market for data centers provides an immense growth opportunity for Equinix. Management expects total revenues to increase 7% in 2024 on a year-over-year basis.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 268 as of Sept. 30, 2024. Moreover, Equinix has an encouraging development pipeline. As of the end of the third quarter of 2024, it had 57 major builds underway across 35 markets in 22 countries, including 13 xScale builds representing more than 22,000 cabinets of retail capacity and more than 100 megawatts of xScale capacity through the end of 2025.The company has a recurring revenue model, which comprises colocation, related interconnection and managed IT infrastructure services. Equinix generated 36% of recurring revenues from its 50 largest customers during the three and nine months ended Sept. 30, 2024. This ensures 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 Sept. 30, 2024, the company’s liquidity totaled $7.2 billion. Moreover, it enjoyed 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 third 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. Moreover, Equinix has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 12.02%. Given a robust operating platform, our year-over-year growth projection of 11.7% for 2024 adjusted funds from operations (AFFO), healthy financial position and a lower dividend payout (compared to its industry), its dividend distribution is expected to be sustainable over the long run. Check Equinix’s dividend history here.What’s Hurting Equinix?However, Equinix competes with data centers operated by established communications carriers and REITs, including Digital Realty Trust DLR and Iron Mountain Incorporated IRM. 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.Despite the Federal Reserve announcing rate cuts recently, the interest rate is still high and is a concern for Equinix. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate. As of Sept. 30, 2024, Equinix’s total debt principal outstanding was nearly $17.79 billion. Our estimate indicates a year-over-year increase of 10.1% in the company’s 2024 interest expenses.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.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Equinix, Inc. (EQIX): Free Stock Analysis Report Iron Mountain Incorporated (IRM): Free Stock Analysis Report Digital Realty Trust, Inc. (DLR): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks