Jefferies Downgrades Iron Mountain, Notes 'Multiple Problems'

In a report published Tuesday, Jefferies analyst Dan Dolev downgraded the rating on < b>Iron Mountain Inc

from Hold to Underperform, while reducing the price target from $33 to $29. Iron Mountain is the largest document management company in the world. However, continued decline in paper demand and falling costs of cloud storage solutions are negatively impacting the company's performance. The company has cut its FY internal growth guidance by 50bps. "IRM was once a beacon of stability, but steepening declines in paper usage (-8% Y/Y LTM) and ever cheaper cloud storage (Amazon's S3 cloud costs declined -70% vs. Dec. '13) should result in a further deterioration in IRM's already battered North America storage rental organic growth ," analyst Dan Dolev pointed out. Iron Mountain's strategy of expanding via capital expenditure or acquisitions has not driven incremental revenues and earnings. The situation is unlikely to improve on the completion of the Recall acquisition. In the report Jefferies noted, "…acquiring Recall won't resolve IRM's chronic cash shortfall, so that it would have to raise equity/debt to avoid cutting the dividend." "…IRM spent ~$1.5bn on CapEx and acquisitions since '12 yet OIBDA still declined -2.5%. Recall should surely drive sizeable synergies, but acquiring a paper storage business also means greater exposure to deteriorating fundamentals and lingering chronic cash shortfall," Dolev added.