Stifel Raises Price Targets on Red-Hot Dividend Data Center Stocks

By Lee Jackson Updated Jan 30, 2:11PM EST · Published Oct 24, 7:15AM EDT

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Stifel Raises Price Targets on Red-Hot Dividend Data Center Stocks — © baranozdemir / Getty Images

If any area in the technology and real estate world has been robust over the past few years, it is the data center stocks, and with good reason. Demand for everything from streaming to cloud computing, storage, gaming, and so much more grows sequentially every year, and that demand is not slowing down any time soon. In addition, big technology companies like Amazon and Facebook are planning on continued capital expenditures in the arena for 2020, and some may even be increasing leased square footage.

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In a new report, while Stifel analysts remain very positive on the segment, they do note that some of the huge growth over the past few years has slowed some. The report said this:

As we enter the third quarter earnings season, data centers continued to outperform and remained among the strongest sectors across the REIT [real estate investment trust] space. While we have yet to see an inflection in the pace of hyperscale leasing as the market remains challenged to reaccelerate, we are likely left with a similar dynamic of steady execution but no material improvement as it relates to Northern Virginia in the U.S., but rather expect further strength in Europe and solid enterprise deployments to ease the Ashburn area softness and sustain guidance.

Six top companies in this arena remain Buy rated at Stifel, and here we focused on those that pay solid distributions and are the bigger players in the industry. In addition, the analysts are also raising price targets, as they feel the companies still offer solid upside and dependable dividends.

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CyrusOne

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

CyrusOne unitholders receive a solid 2.63% distribution. The Stifel price objective on the shares was raised to $85 from $72, while the Wall Street consensus target was last seen at $60.71. The stock closed Wednesday’s trading at $75.34 per share.

Digital Realty Trust

This top data center stock is another solid play on the huge cloud and streaming content revolution. Digital Realty Trust Inc. (NYSE: DLR | DLR Price Prediction) 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 and cloud and information technology services to manufacturing, energy, gaming, life sciences and consumer products. The company rates highest with portfolio managers, given that 8.39% of the market cap of the company is in institutional hands.

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Analysts cite Digital Realty’s 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, some on Wall Street feel the stock is underweighted by active managers and could see an uptick if they started adding shares.

Digital Realty offers investors a very solid 3.20% distribution. The Stifel analysts lifted its price target to $143 from $130, while the posted consensus target price is $126.19. The shares were last seen trading at $135.74 on Wednesday.

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Equinix

This is one of the larger capitalization companies in the industry and a top pick at Stifel. 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 in Equinix are paid a 1.73% distribution. The $610 Stifel target price was held steady and compares with the $514.87 consensus price objective, as well as the most recent closing price of $566.62 a share.

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QTS Realty Trust

This is another top pick data center REIT and could be a potential takeover 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 receive a 3.35% distribution. Stifel has raised its price target to $56 from $53. The posted consensus target price is $47.19, but the shares closed above that level on Wednesday, at $52.67 apiece.

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These top companies offer very solid total return plays in an industry that sees little sign of slowing down. Their shares have rallied this year, and with third-quarter results coming in soon, it may make sense to buy partial positions here and see how the results shake out.

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About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.