DuPont Fabros Shares Offer A Compelling Opportunity At Current Price

Baird has upgraded DuPont Fabros Technology, Inc. DFT, a real estate investment trust that owns and operates wholesale data centers, to Outperform on broadening development opportunities, solid execution and valuation.

Baird's Positive Perspective

The brokerage pointed out that an acquisition of a shell building in Toronto should accelerate the company's move north of the border, while long-term leasing demand are expected to come from the Pacific Northwest, Chicago and Virginia.

“A greater degree of pre-leasing going forward could prove to be a catalyst for the shares,” analyst David Rodgers wrote in a note.

On the balance sheet front, Rodgers estimates forward net debt to EBITDA near 4.9x as of year-enx 2016 and sees free cash flow after the dividend in both 2017 and 2018 will aggregate $91 million and $104 million.

The analyst projects approximately 10 percent dividend increases each year, with AFFO payout ratio at 70 percent for DuPont.

Possible Headwinds Ahead

Meanwhile, investors are concerned about Facebook Inc FB's expiring leases with the company, but any clarity on the event is unlikely before mid-to-late 2017. The analyst’s model assumes a 100 percent Facebook renewal with cash rents lower by approximately 30 percent from 2018–2022.

“Regardless of the impact of FB renewing or vacating, a compelling development story is clearly emerging with $18.5 million of incremental NOI likely to come online during 2017 and another $83 million of potential NOI during 2018 from development completions and leasing,” Rodgers added.

At last check, shares of DuPont Fabros was up 1.4 percent at $41.96.