One of the best things a Wall Street firm can do is add an analyst to their research staff that has direct knowledge of the industry they cover from having worked in it. That’s exactly what SunTrust Robinson Humphrey did when they hired Inder Singh, who previously worked at Comcast and Cisco where he built out big data capability.
In a new research report, Mr.Singh started coverage on the datacenter sector with a very positive view. He sees traffic growing in the mid-20’s% level and feels there is a huge tailwind coming from Cloud builders and outsourcing of IT. He initiates cover of four companies, three of which came with Buy ratings.
This is one of the SunTrust top picks among the data center stocks. Cyrusone Inc. (NASDAQ: CONE) designs, builds and operates facilities across the United States, Europe and Asia that give its customers the flexibility and scale to match their specific growth needs. Specializing in highly reliable enterprise-class, carrier-neutral data center properties, the company provides robust data center infrastructure to ensure the continued operation of IT equipment for a rapidly growing list of organizations that now nears 900, including 9 of the Fortune 20 and more than 160 of the Fortune 1000 or equivalent-sized companies.
Many analysts feel that some of the best returns in the data center sector may be found in the smaller players in the space like Cyrusone. The company trades at numerous lower multiples than their bigger competition, and the SunTrust target price still leaves it trading at a multiple below many of the sector peers. The SunTrust analysts cites the company’s faster deployment times, rapid new market expansion and low churn among customers as all bullish reasons for buying the stock.
CyrusOne is structured as a real estate investment trust (REIT) and unitholders are paid a solid 3.57% distribution. The SunTrust price target is posted at $43, and the Thomson/First Call consensus target is set at $39.82. The shares closed Tuesday at $35.25.
DuPont Fabros Technology
This company offers investors outstanding yield and growth potential and is also organized as a REIT. DuPont Fabros Technology Inc. (NYSE: DFT) is a leading owner, developer, operator and manager of enterprise-class, carrier-neutral, large multi-tenant wholesale data centers. The company’s facilities are designed to offer highly specialized, efficient and safe computing environments in a low-cost operating model. The customers outsource their mission-critical applications and include national and international enterprises across numerous industries, such as technology, Internet content providers, media, communications, cloud-based, healthcare and financial services.
DuPont Fabros has 12 data centers that are located in four major U.S. markets, which total 2.9 million gross square feet and 257 megawatts of available critical load to power the servers and computing equipment of its customers.
The SunTrust analysts highlights the company as having the most potential upside due to the new CEO and business model, the cheapest and most efficient data centers with the highest utilization rate and EBITDA. He also pointed to the company’s strong exposure to the top cloud providers.
DuPont Fabros investors are paid an outstanding 5.11% distribution. The SunTrust price target is a lofty $40, and the consensus is much lower at $35.89. Shares closed Tuesday at $32,89.
This stock will set you back a few bucks, but has a stellar upside potential. Equinix, Inc. (NASDAQ: EQIX) had earnings-per-share revisions moved up 21.7% and target price revisions up 11.9% over the past six months. The company provides data center services to protect and connect the information assets for the enterprises, financial services companies, and content and network providers primarily in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. It connects companies directly to their customers and partners in networked data centers through the Equinix interconnection platform.
Wall Street analysts have cited the company’s strong double-digit top-line growth, solid corporate execution, multi-year secular tailwinds from the shift to hybrid cloud architectures and increasing return of capital to shareholders as all positives that justify the multiple. The SunTrust analyst cites the company’s global footprint, growth that is fueled by interconnection capabilities, and the strong margin expansion.
Equinix investors are paid a 2.3% dividend. The SunTrust price target for the stock is $345. The consensus target is at $319.99. Shares closed Tuesday at $293.21.
All of these top data centers have been considered higher in growth within the cloud and cloud computing technology revolution. They also come with solid distributions for investors who are seeking both growth and income.