Piper Jaffray Initiates Coverage On InterXion With An Overweight Rating, $19 PT

Interxion INXN is a leading data center operator in Europe. Given its strong reputation, high quality facilities and established customer base, the company should benefit from a material demand vs. supply imbalance. Piper Jaffray is initiating coverage with an Overweight rating, as it believes the company should continue to see strong growth, improving margins and high returns on capital.

The data center business model is highly attractive with recurring revenues, strong growth, high returns on investment, and high barriers to entry. Interxion is the largest of four key players in Europe with 28 facilities located throughout 11 countries. The company's industry leading position allows it to charge a premium for its services.

Piper Jaffray expects consolidation to continue in the data center industry, which helps rationalize supply and support pricing. Additionally, consolidation can result in multiple expansion for the industry. Although Interxion's growth has been all organic, the company could be a consolidator in the future if it sees an potentially accretive opportunity.

INXN closed Tuesday at $14.16