Shares of Equinix, Inc. EQIX have risen 11.6% in the past three months against the real estate market’s decline of 0.1%.

The robust demand for data center infrastructure amid enterprises’ growing reliance on technology and acceleration in digital transformation strategies has aided this REIT in recent years. Its strategic expansion efforts, backed by a robust balance sheet, have enabled it to capitalize on favorable industry trends so far.

In October, Equinix reported third-quarter 2024 adjusted funds from operations (AFFO) per share of $9.05, which surpassed the Zacks Consensus Estimate of $8.70. The figure improved 10.5% from the prior-year quarter. Results displayed steady growth in colocation and inter-connection revenues, driven by strong demand for digital infrastructure. During the quarter, Equinix’s total interconnections reached 478,000, rising 4% year over year. The company also revised its outlook for 2024.

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Let us now find out the factors behind the surge in the stock price and check whether this trend will last.

In a world where digital transformation is paramount, Equinix continues to prove itself to be a pivotal player in the global digital infrastructure landscape.  Its geographically diverse portfolio of IBX data centers is expected to benefit from enterprises’ increasing dependence on technology and the expedited implementation of digital transformation strategies.

Its business generates a substantial portion of monthly recurring revenue bookings (greater than 90% of total revenues in the last three years) from existing customers. The company generated 36% of the recurring revenues from its 50 largest customers during the three and nine months ended Sept. 30, 2024. Given the growing demand for data exchanges worldwide, Equinix is well-poised to grow its revenue base. Higher revenues and lower costs will expand margins and increase profitability in the long run.

Equinix continues focusing on acquisitions and developments to expand data center capacity in key markets and strengthen its competitive positioning and global reach. Moreover, Equinix has an encouraging development pipeline. As of the end of the third quarter of 2024, it had 57 major builds underway across 35 markets in 22 countries, including 13 xScale builds representing more than 22,000 cabinets of retail capacity and more than 100 megawatts of xScale capacity through the end of 2025.

Equinix’s robust balance sheet position enables it to capitalize on long-term growth opportunities. As of Sept. 30, 2024, the company’s liquidity totaled $7.2 billion. Moreover, it enjoyed investment-grade credit ratings of Baa2 from Moody’s, BBB rating from S&P Global Ratings and BBB+ from Fitch Ratings as of the end of the third quarter of 2024, rendering it favorable access to the debt market.

Solid dividend payouts are a massive attraction for REIT investors, and Equinix has remained committed to that. EQIX has increased its dividend five times in the last five years, and its five-year annualized dividend growth rate is 12.02%. Given a robust operating platform, a healthy financial position and a lower dividend payout (compared to its industry), its dividend distribution is expected to be sustainable over the long run. Check Equinix’s dividend history here.

Analysts also seem bullish on this Zacks Rank #2 (Buy) stock. The estimate revision trend for 2024 FFO per share indicates a favorable outlook for the company, with estimates moving north over the past month to $35.16.

Other Stocks to Consider

Some other top-ranked stocks from the REIT sector are Iron Mountain Incorporated IRM and Cousins Properties CUZ, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Iron Mountain’s 2024 FFO per share has been raised marginally over the past month to $4.49.

The Zacks Consensus Estimate for Cousins Properties’ current-year FFO per share has moved marginally north in the past month to $2.68.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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