Equinix Stock Deemed Fully Valued By Analyst: Anticipated AFFO Earnings Deceleration Poses Risk

Truist Securities analyst Anthony Hau downgraded the ratings on shares of Equinix, Inc. EQIX from Buy to Hold, lowering the price target to $815 from $870. 

The analyst perceives the stock as fully valued with near-term growth risks. 

Hau anticipates a deceleration in adjusted funds from operations (AFFO) earnings growth in 2024 (to 6.6% from 9.6% in 2023) due to various factors such as tough comparisons, interest expenses, higher CapEx (assuming the same mix as 2023), and a possibly deteriorating economic outlook.

Also Read: Equinix Says It's Too Early For AI Projections: Analyst Changes Bullish Rating

Moreover, long-term AFFO growth could be affected by the higher cost of debt as a significant amount of debt matures in the next five years (~$6bn of debt is maturing with a weighted average coupon rate of ~1.6%). 

While there is potential for EQIX to grow into its valuation multiple due to management's track record, strong fundamentals, and likely tailwinds from FX, the analyst believes there is a greater downside risk to the valuation. 

Price Action: EQIX shares are trading higher by 0.51% to $763.81 on the last check Tuesday.