Equinix: Dollars and data
A potential conversion to a REIT could boost the valuation of this data center operator.
As the online world transfers more data and as more applications are hosted in the cloud, Equinix (EQIX) is sure to benefit.
The stock has been a leader all year, breaking out in a big way in early January, climbing higher for months, and now re-asserting itself on the upside. The reason for the recent renewed strength in the stock was a bullish quarterly report and outlook -- sales rose 18%, with recurring revenue making up 95% of the total.
In addition, cash flow was up 22% from the year-before period and management upped its guidance slightly going forward.
All that tells investors that, despite a sharp economic slowdown, demand for the company's data center space and services (including co-location and interconnection services, which are vital for its 700-plus network service providers) remains strong.
Meanwhile, key metrics -- such as cabinet billings and utilization rates -- are all point up. The gold egg here is the possibility of Equinix converting itself (or part of itself) to a real estate investment trust in the quarters ahead -- something that would lead to huge tax savings down the road.
Such a move would also lead to big dividends and a higher valuation. Currently, Equinix trades at a 15% to 30% discount compared to similar firms that are already REITs.
Technically, EQIX has been choppy since late April, when the stock gapped higher on monstrous volume.
It then etched a six-week consolidation between $145 and $170, but its breakout in mid-June fell flat because of the broad market. It then went on to build another six-week zone, this time from $160 to $180, before gapping higher on earnings last week.
The stock has slipped since after an analyst downgraded the shares based on valuation. But to us, the stock still appears to be in good shape. If you don't own any, we think picking up shares around here makes sense, with a stop in the high $160s.
More from TheStockAdvisors.com
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
These hot movers could rise by double digits in coming months.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.