Goldman Sachs’ Jiorden Sanchez believes QTS Realty Trust Inc QTS is attractively positioned due to its “3C” offering.
Sanchez initiated coverage of the company with a Neutral rating and price target of $57.
The 3C
The analyst mentioned that QTS Realty’s “3C” offering attractively positions the company “for secular trends in enterprise outsourcing, with its integrated portfolio of data center and cloud services targeting those with increasingly diverse IT stacks.”
Over 50 percent of the rent comes from customers with multiple products, up from the below 40 percent three years ago. The “3C” offering exposes the company to a larger TAM, as compared to peers, while driving leading growth, supporting up-sell opportunities and improving retention.
Beneficial Trends
“QTS’ mega scale facilities provide 5 years of growth in footprint and significant operating leverage. With the space to nearly double capacity at known costs, these mega scale facilities de-risk the growth profile while supporting healthy 15 percent returns,” Sanchez pointed out.
The analyst expects continued consolidation, with operators looking to add scale and pure plays to broaden their offering so that they can serve diverse needs.
Sanchez expects QTS Realty to benefit from these trends “with an acquirer (1) jump-starting diversification efforts through the 3C platform, (2) seeing value in the excess capacity within QTS’ mega-scale facilities and (3) realizing synergy benefits as it scales QTS’ cost structure.”
However, the analyst expects the company to see near-term execution risk associated with the Carpathia migrations.
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