On Equinix Inc. (NGS: EQIX) our target price is $860.
However, most of EQIX’s peers have weaker growth prospects.
EQIX recently reported 3Q20 revenue of $1.52 billion, up 9% from the prior-year period. AFFO came to $580 million or $6.48 per share.
Equinix posted solid bookings across all three regions for the third quarter, with its strongest growth in EMEA. Its key cloud and technology partners include Cisco, Google, Oracle, Microsoft, and AT&T.
With regard to acquisitions, in August, Equinix agreed to purchase the Indian operations (two data centers in Mumbai) of GPX Global Systems for $161 million. (Bare metal servers are physical and serve one tenant. They are distinguished from virtual or cloud hosting and servers that connect multiple users.)
On April 21, the company signed a $1.0 billion joint venture agreement with GIC, Singapore’s sovereign wealth fund, to develop data centers in Japan. This is Equinix’s second joint venture with GIC.
On June 1, the company entered into an agreement to purchase 13 Canadian data center sites from BCE Inc. (‘Bell’) for $750 million. The purchase is expected to provide $105 million in annualized revenue. As of October 1, 12 of the 13 data centers had been officially acquired. Management expects the remaining data center to be acquired in 4Q20.
EARNINGS & GROWTH ANALYSIS
In the Americas segment, revenue rose 6% in constant currency to $672 million. The Packet and Axtel acquisitions added $13 million to the top line; recently opened IBX data centers added $7 million; and EIS boosted nonrecurring revenue. Adjusted EBITDA fell 3% to $291 million.
In the EMEA segment, revenue rose 14% to $518 million, as IBX data centers generated $25 million in additional revenue. Third-quarter income from operations rose 39% to $149 million, as revenue growth outweighed the impact of higher G&A costs and flat sales and marketing costs. On an adjusted constant-currency basis, EBITDA rose 25% to $263 million.
In the Asia-Pacific segment, revenue rose 10% to $329 million as IBX data centers generated $11 million in additional revenue and EIS sales were strong. Income from operations rose 4% to $88 million, helped by lower sales and marketing expense, partly offset by a higher cost of revenue and increased general and administrative expense. On an adjusted constant-currency basis, EBITDA rose 16% to $263 million.
Along with the 3Q20 results, management raised its FY20 guidance to reflect a more optimistic view of the fourth quarter. EQIX now projects revenue of $5.98-$6.00 billion, up from its previous forecast of $5.92-$5.99 billion. It also expects AFFO of $2.16-$2.18 billion or $24.38-$24.61 per share, up from $2.04-$2.13 billion and $23.62-$24.66 per share.
Reflecting the better-than-expected 1H20 results and management’s guidance.
FINANCIAL STRENGTH & DIVIDEND
Moody’s rates EQIX’s debt as Baa3. Moody’s raised this rating on May 11. Fitch and S&P have investment-grade BBB- ratings. Fitch raised its rating on June 8.
The payout ratio has hovered around 44% during this period. Our dividend estimates are $10.64 for 2020 and $11.48 for 2021, down from $11.68.
MANAGEMENT & RISKS
Charles Meyers has been the company’s president and CEO since September 2018. Peter Van Kamp has served as executive chairman since April 2007 and was the CEO from May 2000 until March 2006. He also served as interim CEO from January to September 2018.
When interest rates rise, REITs tend to decline in tandem with bonds.
The shares also trade at 31.4-times our 2020 AFFO estimate, toward the high end of the five-year historical range of 19.1-36.9 and above the peer average of 20.5. However, most of EQIX’s peers have weaker growth prospects.
On November 5 at midday, BUY-rated EQIX traded at $788.22, up $10.93.