CyrusOne Is Up 13% In Two Weeks, But What's Next?

Gabelli & Company's Sergey Dluzhevskiy downgraded the rating on

from Buy to Hold, citing the stock's jump after the company reported its 2Q15 results on August 5. CyrusOne's shares had climbed about 13 percent in the last couple of weeks, after the company reported marginally higher-than-expected adjusted EBITDA for the second quarter. CyrusOne had closed the acquisition of Cervalis on July 1 and provided updated 2015 guidance that reflected the impact of the acquisition. "The mid-point of normalized FFO per share guidance of $2.10 (with Cervalis contributing $0.16-0.18/share) was about $0.10/share ahead of our prior estimate," Dluzhevskiy said. Management noted that incremental interest expense synergies and lease-up of existing inventory were expected to result in total normalized FFO per share accretion of about 9 percent in 2016, the mid-point being $0.11-$0.16 per share. Dluzhevskiy wrote, "While we are raising our valuation multiple on CONE to 14.5x EBITDA (from previous 14.0x), given more diversified business (from customer vertical and geographic perspectives) and improved growth potential with Cervalis acquisition as well as rising multiples for CONE's publicly traded data center REIT peers, we are also increasing our CAPEX expectation for 2016-17." Dluzhevskiy believes that CyrusOne's stock was "fairly valued, on a total return basis," and already reflected the company's strong operating momentum and the potential accretion and portfolio diversification or product strengthening from the Cervalis acquisition.