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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.
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What’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.