27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.
During 2014 data center REIT CyrusOne Inc (NASDAQ: CONE) added 15 more logos to its impressive customer list of 144 Fortune 1000 companies choosing to store crucial information in one of its 25 data centers.
Perhaps even more impressive for investors was the announcement of a 50 percent quarterly dividend increase for Q1 2015; which follows on the heels of a 32 percent dividend increase last year.
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On February 19, a day after the CyrusOne earnings call presentation, UBS reiterated its Buy rating and increased its PT 9.7 percent from $31 to $34; while MLV & Co. reiterated its Buy rating and raised its CONE price target from $30 to $32.
Data Center REIT Performance - Does Size Matter?
All things being equal it easier for smaller cap data centers to move the needle through accretive growth.
However, smaller in market cap does not necessarily mean small scale data centers. A small interconnect customer may grow dramatically if a product or service offering takes root, provided there is room to expand.
Large scale facilities helps $1.15 billion market cap CyrusOne, as well as peers $2.3 billion CoreSite Realty Corp (NYSE: COR) and $1.1 billion cap QTS Realty (NYSE) to serve small interconnection focused clients and also compete for large "wholesale" clients on a case by case basis.
$9 billion cap Digital Realty Trust, Inc. (NYSE: DLR) and DuPont Fabros Technology, Inc. (NYSE: DFT) have historically both focused on larger wholesale customers.
Digital CEO Bill Stein has recently highlighted "mid-market" sales initiatives to broaden the DLR marketing effort.
DuPont Fabros has recently seen a reduction in its market cap to $2.6 billion. Both Jefferies and UBS have lowered their DFT price targets subsequent to the February 5, Q4 2014 earnings call.
Brand new DuPont Fabros CEO Christopher P. Eldredge comes from a telecom background and certainly understands the value of interconnection.
7 Slides Explain CyrusOne's Dividend Raise
While CyrusOne has a primary focus on large enterprises -- demonstrated by 144 Fortune 1000 client logos -- the company also grew it customer base to a total of 669 by the end of 2014.
The rate of growth of these smaller clients shows that CONE has been successful in developing this higher margin business.
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Key Metrics - Strong Across The Board
The year-over-year AFFO increase of 43 percent is one key to the CyrusOne rapid dividend growth. AFFO is also referred to as cash available for distribution.
Low Facility Cost Basis
This is a key to driving higher margins and ROIC.
This allows CONE to provide competitive lease proposals, and deliver "just-in-time" data hall build outs, which also contribute to higher returns.
OK, What About Texas?
Texas has been a job generating machine during and since the great recession. Recently homebuilders and multi-family landlords in the Houston area are forecasting a slowdown due to the spike down in oil prices.
However, the data center business may be an entirely different story in 2015 and 2016. The trends in increased data center outsourcing by enterprise customers are likely to counter-balance low oil pricing.
CyrusOne has a significant footprint in Texas, with high data center utilization in: Austin, Houston, San Antonio and Dallas.
The Energy vertical now represents only 28 percent of CONE revenues. There are over 25 non-energy Fortune 500 companies with headquarters in Texas.
During the earnings call, CEO Gary Wojtaszek reminded analysts: "The period from 2008 to 2010, which was the worst financial recession this country has encountered since the 1930's, was also a time when many companies were aggressively cutting back their capital investment -- yet the overall data center industry grew at over 18% annually."
Bottom Line
CyrusOne guidance for 2015E normalized FFO is $1.90 to 2.00 per share, a 12.7 percent increase over $1.73 per share for 2014 at the mid-point.
The most fundamental metric for most REIT shareholders is dividend growth. Investors would be hard-pressed to find a management team that has delivered better results on that score during the past two years.
27% profit every 20 days?
This is what Nic Chahine averages with his option buys. Not selling covered calls or spreads… BUYING options. Most traders don’t even have a winning percentage of 27% buying options. He has an 83% win rate. Here’s how he does it.