Data center company Switch Inc SWCH signed a new 15-megawatt lease with an unnamed international streaming media company May 4, and the move was notable enough to end Cowen's bearish stance on the stock.
The Analyst
Cowen's Colby Synesael upgraded Switch from Underperform to Market Perform with an unchanged $14.50 price target.
The Thesis
Switch's 15-MW lease agreement represents at least $100 million in incremental contract value, which implies there is now a "higher likelihood" of the company hitting its guidance, Synesael said in the upgrade note.
Switch guided 2018 revenue to a range of $423 to $440 million, which at the midpoint implies a 14.1-percent growth rate. At that time, investors had reason to question the guidance, as the company's first-quarter revenue was estimated to come in at $98.9 million, Synesael said.
The exact terms of Switch's new agreement are unknown, and it would be reasonable to assume the 15-MW deal is priced at $110/kW, which is an estimated price for the given size, the analyst said. This implies an annual contract value of $20 million per year, or a $10-million contribution in the back half of 2018, he said.
The new agreement by itself doesn't guarantee Switch will impress investors in future earnings reports, but is nonetheless a "notable benefit" — and the timing of the announcement ahead of Switch's May 14 earnings report was "meant to lend confidence to guidance," Synesael said.
Price Action
Switch shares were down 0.78 percent at $15.29 at the time of publication Friday afternoon.
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Photo courtesy of Switch.
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