Baird Gets Bullish On Digital Realty After Recent Pullback

Shares of Digital Realty Trust, Inc. DLR have lost more than 5 percent since the start of 2018, which prompted one analyst to encourage investors to buy the stock on the dip.

The Analyst

Baird Equity Research's David Rodgers upgraded Digital Realty Trust's stock from Neutral to Outperform with a price target boosted from $121 to $124.

The Thesis

Data center stocks, especially Digital Realty, saw a tough start to 2018 despite multiple datapoints pointing to a positive year ahead, Rodgers said in a note. Specifically, "private contact discussions" suggests Digital Realty could benefit from Facebook Inc FB's expansion plans in Northern Virginia. Other commentary suggests "similarly strong" data center demand across the top tier U.S. data center markets.

Digital Realty's "full cage-cabinet-wholesale-super wholesale menu" for new customers could result in the company leveraging 73,000 cross-connects and 55 Service Exchange-enabled data centers, the analyst said. The company's sales force and full product offering should result in capturing a greater share of business moving forward. Over a longer-term period, Digital Realty is well positioned to benefit from a surge in internet-based applications over the next five to 10 years from both personal and business users.

"We still believe that cheap, high quality storage will remain in demand," Rodgers concluded. We look for DLR's brand name and cost of capital advantage over smaller firms to remain a competitive advantage in addition to its inventory of available space in key markets around the world."

Price Action

Shares of Digital Realty gained more than 3 percent Tuesday morning.

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