Cowen's Colby Synesael upgrades Digital Realty's stock from Market Perform to Outperform with a price target raised from $106 to $126 as the acquisition, which is expected to close in the bottom half of 2017 will not only increase the company's revenue and funds from operation and adjusted funds from operations growth but also add strategic value to hyper-scale customers (Check Colby Synesael's track record).
Growth Profile
Digital Realty expects the acquisition to be approximately 2 percent accretive to its 2018 Core FFO/share and around 4 percent accretive to its 2018 AFFO/share. However, this forecast may prove to be conservative as the deal could prove to be 4 percent accretive to 2018 Core FFO/share and 7 percent accretive to 2018 AFFO/share, the analyst noted.
In addition, Digital Realty's five-year revenue compounded annual growth will increase 110 basis points to 7.8 percent, which generates even higher accretion in outer-years.
Strategic Value
Digital Realty hasn't played a major role in the super wholesale/hyper-scale segment of the data center industry over the past 18 months, Synesael argued. But this is poised to change as the acquisition of DuPont Fabros gives the company a holistic solution set that includes interconnect/colocation, wholesale/scale and super-wholesale/hyper-scale.
Digital Realty will now be of "increasing strategic value" to hyper-scale providers in the same way that providers that offer macro towers and small cells will be of value to the wireless telecom industry, the analyst added.
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