Why Data Center Stocks May Be the Best Buy for the Rest of 2018

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Digital Realty Trust

This top data center company also is a solid play on the huge cloud and streaming content revolution. Digital Realty Trust Inc. (NYSE: DLR) supports the data center and colocation strategies of more than 600 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia.

Digital Realty’s clients include domestic and international companies of all sizes, ranging from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products. The company rates highest with portfolio managers as 8.39% of the market cap of the company is in institutional hands.

The analysts cite the solid dividend, and the potential for dividend growth. They also feel that data center pricing is still favorable, and the growth in adoption of the cloud is a positive going forward. The analysts said this after a strong quarterly report:

Digital reported strong results with record leasing and backlog and continues to see solid demand across its portfolio, a trend we expect to continue as the company capitalizes on its superior multi-region footprint with customers increasingly seeking deployments that span multiple geographies and product categories to better compete in the global market.

Investors receive a 3.26% distribution. The $130 Stifel price target compares with the $128.72 consensus target. The shares closed Monday at $123.80.

Interxion

This company doesn’t pay a distribution but is a top play for investors looking for European exposure. Interxion Holding N.V. (NYSE: INXN) builds and operates 39 carrier-neutral data centers in 11 countries across Europe, spanning nearly 100,000 square meters. The company services approximately 1,500 customers, consisting of network providers, managed service providers, financial services companies, digital media and distribution companies, and enterprises.

With over 600 connectivity providers, 21 European internet exchanges, and most leading cloud and digital media platforms across its footprint, Interxion has created connectivity, cloud, content and finance hubs that foster growing customer communities of interest.

Stifel likes the European exposure and said this:

The company exhibited solid bookings and has a sales pipeline that sets the stage for growth in the second half of 2018 and into 2019. Interxion is clearly among the best (if not the best) positioned for long-term growth in the European market given its leading share of network and compute nodes which enables it to capture an increasing level of Hyperscale activity and a key driver of enterprise migration.

Stifel has set its price objective at $74. The consensus target price is $72.16, and shares closed on Monday at $63.45.

QTS Realty Trust

This is another top data center pick that could be a takeover target. QTS Realty Trust Inc. (NYSE: QTS) is a leading provider of secure, compliant data center solutions, hybrid cloud and fully managed services. Its integrated technology service platform of custom data center, colocation and cloud and managed services provides flexible, scalable, secure IT solutions for web and IT applications.

The company’s Critical Facilities Management provides increased efficiency and greater performance for third-party data center owners and operators. QTS owns, operates or manages 24 data centers and supports more than 1,000 customers in North America, Europe and Asia-Pacific.

The analysts are somewhat more cautious on the shares:

QTS has been able to deliver 2 consecutive quarters of solid leasing and financial performance, and so far, management has delivered steady execution on its newly minted strategic plan as non-core C3/cloud and managed service assets have been transitioned to GDT, a company that does data center modernization more rapidly and seamlessly than we expected, which has been supported by promising customer retention. While we are certainly encouraged by management’s performance and commentary around strength in the hyperscale pipeline, we believe QTS remains in a ‘prove it’ stage as investors test the waters of re-entry

Investors receive a 3.72% distribution. The Stifel price target is $48. The consensus target is $46.43, and shares closed Monday at $44.14.

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All of these, with the exception of Interxion, are very solid total return plays in an industry that sees no signs of slowing down. While the stocks have rallied from levels printed in the spring, they still have good upside potential, and are somewhat safer ways to play technology and entertainment content.