It never fails. Just when you think some legacy technology giant is down for the count, it regroups and comes back, and just blowing away the skeptics and sometimes Wall Street as a whole. That is exactly what semiconductor giant Intel Corp. (NASDAQ: INTC) did last Thursday when it reported huge fourth-quarter numbers.
The venerable chip leader reported fourth-quarter financial results with a stunning $1.52 in earnings per share (EPS) and $20.21 billion in revenue, compared with consensus estimates that called for $1.25 in EPS and $19.23 billion in revenue. The same period of last year reportedly had $1.28 in EPS and $18.66 billion in revenue.
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One reason for the huge surprise is an area the company has focused diligently on the past few years, as it moved away from being PC and laptop focused and shifted to data center growth. For the quarter, data-centric businesses achieved record revenue. This was led by record Data Center Group revenue, which grew 19% year over year. Robust demand from cloud service provider customers and a continued strong mix of high-performance processors drove this growth.
We have covered the top data center stocks for years here at 24/7 Wall St., and the timing for investors looking to add shares in the top companies could not be better, as most backed up quite a bit in the fourth quarter after huge runs in 2018 and early 2019.
We screened the Merrill Lynch data center coverage universe and found four top stocks that pay healthy dividends and look like solid 2020 buys.
CyrusOne
This is a top pick among the data center stocks and is priced right. 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 3.19% distribution. The Merrill Lynch price objective for the shares is $75, while the Wall Street consensus target price is $60.71. The shares closed trading on Friday at $62.62 apiece.
Digital Realty Trust
This top data center company 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 and cloud and information technology services to manufacturing, energy, gaming, life sciences and consumer products. The company rates highest with portfolio managers, as 8.4% of the market cap of the company is in institutional hands.
Top analysts cite the solid dividend and the potential for dividend growth. Many also feel that data center pricing is still favorable and the growth in adoption of the cloud is a huge positive going forward. Lastly, some on Wall Street feel the stock is underweighted by active managers and could see an uptick if they started adding shares in 2020.
Digital Realty offers investors a very solid 3.37% distribution. Merrill Lynch has a price target of $140, and the posted consensus target is $126.19. The stock was last seen trading at $128.26 a share.
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Equinix
This is one of the larger capitalization companies in the industry and a top pick. Equinix Inc. (NASDAQ: EQIX) 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.
The company provides colocation services and related offerings, including operations space, storage space, cabinets and power for customers colocation needs; interconnection services, comprising physical cross connect/direct interconnections, Equinix Internet Exchange, Equinix Cloud Exchange, Equinix Metro Connect and Internet connectivity services; and managed IT infrastructure services, including installation of customer equipment and cabling, as well as equipment rebooting and power cycling, card swapping and emergency equipment replacement services.
Equinix investors are paid a 1.66% distribution. The $630 Merrill Lynch target price compares with the $514.87 consensus price objective. The last trade on Friday came in at $591.96 a share.
24/7 Wall St.QTS Realty Trust
This is a top pick data center real estate investment trust that has been mentioned as a takeover target in the past. 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 (CFM) 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.
QTS investors receive a 3.08% distribution. Merrill Lynch has set its price target at $56. The consensus target is $47.19, and the shares closed at $57.21 on Friday.
These top stocks are very solid total return plays in an industry that sees very little sign of slowing down. The good news for investors is that Intel’s huge growth should indicate that demand is still big for data center capacity. In addition, most of these stocks have come way off the 52-week highs that were posted last year, and all are also good income ideas as well.
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