If any area in the technology and real estate world has been robust over the past few years, it is the data center stocks, and with good reason. Demand for everything from streaming to cloud computing, storage, gaming, and so much more grows sequentially every year, and that demand is not slowing down any time soon. In addition, big technology companies like Amazon and Facebook are planning on continued capital expenditures in the arena for 2020, and some may even be increasing leased square footage.
In a new report, while Stifel analysts remain very positive on the segment, they do note that some of the huge growth over the past few years has slowed some. The report said this:
As we enter the third quarter earnings season, data centers continued to outperform and remained among the strongest sectors across the REIT [real estate investment trust] space. While we have yet to see an inflection in the pace of hyperscale leasing as the market remains challenged to reaccelerate, we are likely left with a similar dynamic of steady execution but no material improvement as it relates to Northern Virginia in the U.S., but rather expect further strength in Europe and solid enterprise deployments to ease the Ashburn area softness and sustain guidance.
Six top companies in this arena remain Buy rated at Stifel, and here we focused on those that pay solid distributions and are the bigger players in the industry. In addition, the analysts are also raising price targets, as they feel the companies still offer solid upside and dependable dividends.
This is a top pick 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 nine 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 has traded at numerous lower multiples than some of its bigger competition, and other top analysts also feel that the discount valuation is not warranted given the recent surge in leasing and above-average growth. The company also has exhibited faster deployment times, rapid new market expansion and low churn among customers, all bullish reasons for buying the stock.
CyrusOne unitholders receive a solid 2.63% distribution. The Stifel price objective on the shares was raised to $85 from $72, while the Wall Street consensus target was last seen at $60.71. The stock closed Wednesday’s trading at $75.34 per share.
Digital Realty Trust
This top data center stock is another 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 and cloud and information technology services to manufacturing, energy, gaming, life sciences and consumer products. The company rates highest with portfolio managers, given that 8.39% of the market cap of the company is in institutional hands.