Stifel’s Shlomo H. Rosenbaum believes that the consensus forecasts for Iron Mountain Inc IRM do not adequately factor in the potential upside to dividends and AFFO, driven by the Recall acquisition and the legacy business’ Transformation plan.
Rosenbaum upgraded the rating on the company from Hold to Buy, with a price target of $39.
“While the additional level of divestitures required by regulators makes the 5-year plan tougher to achieve, the bulk of the targets from the 2016-2018 portion of the plan are from integration synergies and from the Transformation plan which are largely in management’s hands,” Rosenbaum mentioned.
The analyst also stated that while the additional divestitures related to the Recall acquisition are a negative, the acquisition itself was accretive, and would lead to a decline in leverage, while enhancing Iron Mountain’s market positioning.
Rosenbaum pointed out that the consensus expectations do not adequately reflect the benefits from the Recall acquisition.
The analyst expects the acquisition to drive AFFO of $2.98 in 2017, with dividend per share rising to $2.20.
Although Rosenbaum does not expect acceleration in secular trends in the near term, the benefits from the Recall acquisition is expected to offset the shift to a more paperless society over the next couple of years.
“The combination of this point, plus our view that most of the targets through 2018 are in management’s control (cost efficiencies), give us comfort in our estimate for the next several years,” the Stifel report said.
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