Infrastructure

SunTrust Raises Price Targets on Red-Hot Data Center Stocks

Lee Jackson

Published: October 16, 2017 8:30 am

Last Updated: January 12, 2020 7:10 am

With the cloud bursting with everything from video streaming to cloud computing, the demand for data centers has continued to grow. A hot new initial public offering on Wall Street was from a data center company, and most analysts see the demand increasing exponentially over the next five years and beyond. For investors who have been long the stocks, the ride has been nothing short of spectacular. One top firm we cover here at 24/7 Wall St. thinks the group still has room to run.

A new SunTrust Robinson Humphrey research report makes the case that while some investors appear to be looking to take profits, traditional real estate investment trust (REIT) investors are just now getting serious about the sector. The report noted this:

Typically one would expect the adoption of an entirely new asset class by REIT investors to be a lengthy process. One might expect an even lengthier process given that the associated level of technology associated with the data center space. However, given the often lackluster alternatives in the broader REIT sector, we are not surprised to witness adoption levels that continue to increase.

The analyst raised its price targets on six top companies to Buy. All make good sense for more aggressive growth and income accounts.

CoreSite Realty

This company offers among the highest payouts to investors in the group. CoreSite Realty Corp. (NYSE: COR) delivers secure, reliable, high-performance data center and interconnection solutions to a growing customer ecosystem across eight key North American markets. More than 900 of the world’s leading enterprises, network operators, cloud providers and supporting service providers choose CoreSite to connect, protect and optimize their performance-sensitive data, applications and computing workloads.

CoreSite’s scalable, flexible solutions and more than 350 dedicated employees consistently deliver unmatched data center options — all of which leads to a best-in-class customer experience and lasting relationships.

CoreSite investors are paid a very generous 3.21% distribution. The SunTrust price target was raised to $121 from $115. The Wall Street consensus price target is set at $113.33, and the shares closed Friday at $112.29.

CyrusOne

This is another top pick among the data center stocks. CyrusOne Inc. (NASDAQ: CONE) designs, builds and operates facilities across the United States, Europe and Asia that give its customers the flexibility and scale to match their specific growth needs. Specializing in highly reliable enterprise-class, carrier-neutral data center properties, the company provides robust data center infrastructure to ensure the continued operation of IT equipment for a rapidly growing list of organizations that now nears 900, including nine of the Fortune 20 and more than 160 of the Fortune 1000 or equivalent-sized companies.

Many analysts feel that some of the best returns in the data center group may be found in the smaller players in the space like CyrusOne. The company trades at numerous lower multiples than its bigger competition, and top analysts feel that the discount valuation is not warranted given the recent surge in leasing and above-average growth. The company has also exhibited faster deployment times, rapid new market expansion and low churn among customers — all bullish reasons for buying the stock.

CyrusOne unitholders are paid a solid 2.72% distribution. The SunTrust price objective is raised to $72 from $64, while the consensus target is set at $65.25. The shares closed Friday at $61.78.

Digital Realty Trust

This top data center company is a solid play on the huge cloud and streaming content revolution. Digital Realty Trust Inc. (NYSE: DLR) supports the data center and colocation strategies of more than 600 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia. Digital Realty’s clients include domestic and international companies of all sizes, ranging from financial services, cloud and information technology services, to manufacturing, energy, gaming, life sciences and consumer products. The company rates highest with portfolio managers as 8.39% of the market cap of the company is in institutional hands.

The analysts cite the solid dividend, and the potential for dividend growth. They also feel that data center pricing is still favorable, and the growth in adoption of the cloud is a positive going forward. Lastly, they feel the stock is underweighted by active managers, and could see an uptick if they started adding shares.

Investors are paid a very solid 3.03% distribution. The SunTrust price target moved to $140 from $131. The posted consensus price target is $121.33. The stock closed Friday at $121.78 a share.

Equinix

This is one of the larger cap companies in the data center arena, and a top play for more conservative accounts. Equinix Inc. (NASDAQ: EQIX) provides data center services to protect and connect the information assets for the enterprises, financial services companies, and content and network providers primarily in the Americas, Europe, the Middle East, Africa and the Asia-Pacific.

The company provides colocation services and related offerings, including operations space, storage space, cabinets and power for customers colocation needs; interconnection services, comprising physical cross connect/direct interconnections, Equinix Internet Exchange, Equinix Cloud Exchange, Equinix Metro Connect and Internet connectivity services; and managed IT infrastructure services, including installation of customer equipment and cabling, as well as equipment rebooting and power cycling, card swapping and emergency equipment replacement services.

Investors are paid a 1.73% distribution. SunTrust raised its $500 target price to a stunning $530, while the consensus price objective is $500.25. The stock last traded at $462.82 a share.

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QTS Realty Trust

This is another top pick data center REIT that could be a target. QTS Realty Trust Inc. (NYSE: QTS) is a leading provider of secure, compliant data center solutions, hybrid cloud and fully managed services. Its integrated technology service platform of custom data center, colocation and cloud and managed services provides flexible, scalable, secure IT solutions for web and IT applications.

The company’s Critical Facilities Management (CFM) provides increased efficiency and greater performance for third-party data center owners and operators. QTS owns, operates or manages 24 data centers and supports more than 1,000 customers in North America, Europe and Asia-Pacific.

QTS investors are paid a 2.91% distribution. The $60 SunTrust price target was raised to $62. The consensus target is $58.36, and shares closed Friday at $53.68.

Interxion

This company doesn’t pay a distribution but is a top play for investors looking for European exposure. Interxion Holding N.V. (NYSE: INXN) builds and operates 39 carrier-neutral data centers in 11 countries across Europe, spanning nearly 100,000 square meters. The company services approximately 1,500 customers, consisting of network providers, managed service providers, financial services companies, digital media and distribution companies, and enterprises.

With over 600 connectivity providers, 21 European internet exchanges, and most leading cloud and digital media platforms across its footprint, Interxion has created connectivity, cloud, content and finance hubs that foster growing customer communities of interest.

The SunTrust price objective was raised to $57 from $55. The consensus price target is $56.28, and shares ended trading on Friday at $52.12.

All these, with the exception of the last one, are very solid total return plays in an industry that sees no signs of slowing down. In addition, all have backed up some from highs printed earlier this year and are offering better entry points.