Despite the huge market run in 2017, one thing remains pretty obvious. Demand at data centers driven by cloud computing and content will only continue to grow, and wireless usage should also remain on a similar upward trajectory. While some of the huge gains in these sectors may be a thing of the past, the chances that continued higher prices for the top stocks are a distinct possibility.
In a new research report, SunTrust Robinson Humphrey continues to like the top tower and data center stocks as we head into 2018, and with good reason. The report noted this:
With 2017 coming to a close and many of our industry predictions come to fruition, we turn our attention to 2018. With strong underlying secular demand drivers, we believe data centers and tower operators will produce fairly consistent beat-and-raise quarters, nudging stocks higher.
We screened the SunTrust data center and tower stocks coverage list and found five rated Buy where they raised the price targets. These are best suited for aggressive accounts with a higher degree of risk tolerance.
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American Tower
This wireless tower company is a top pick on Wall Street and is acknowledged as an industry leader. American Tower Corp. (NYSE: AMT) is the largest global owner and operator of wireless and broadcast communications towers. Its portfolio includes approximately 140,000 sites in the United States, Latin America, India, Europe and Africa. The core business for the company is leasing space on its wireless towers, primarily to wireless carriers, government agencies and broadband data providers.
On a multiple basis the stock trades cheaper than the competition, and many top analysts around Wall Street feel the growth potential for the company remains among the best in the industry.
American Tower investors receive a 1.94% distribution. SunTrust raised its price target for the stock to $175 from $157. The Wall Street consensus target is $162.41, and shares closed Thursday at $144.11.
CyrusOne
This is a top pick among the data center stocks across Wall Street. 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 such as CyrusOne. The company trades at numerous lower multiples than its bigger competition, and the 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, and all are bullish reasons for buying the stock.
CyrusOne unitholders receive a 2.81% distribution. The $72 SunTrust price objective was raised to $75, and the consensus target is $69.29. Shares closed Thursday at $59.88.
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Equinix
This is one of the larger capitalization companies in the industry and the top pick at SunTrust. 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 receive a 1.76% distribution. SunTrust raised its $530 target price to a stunning $575. The consensus price objective is $522.13. Shares closed Thursday at $455.77.
SBA Communications
This is another top tower company getting a boost at SunTrust. SBA Communications (NASDAQ: SBAC) is the third largest U.S. wireless tower company, with approximately 25,000 towers spread across the United States, Canada and Latin America.
The core business for SBA is leasing antenna space on its towers to various wireless service providers on a long-term basis. The company also manages rooftop and tower sites for property owners under various contractual arrangements, and it has a large site development and construction division.
The SunTrust price target was raised to $182 from $167, and the consensus target is $173.14. Shares closed Thursday at $166.68.
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QTS Realty Trust
This is another top pick data center real estate investment trust (REIT) that could be a 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.
Investors receive a 2.88% distribution. SunTrust raised the price target to $67 from $64, while the posted consensus target is $61.29. Shares closed Thursday at $54.35.
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The good news for investors looking to buy any of these top companies is they all have come down nicely in price over the past month and are offering much better entry points. It is also important to remember that as they are structured as REITs, the distributions paid could contain return of principal.
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