Shares of Iron Mountain Incorporated IRM have rallied 11.6% in the past six months, against the industry’s fall of 3.1%.

Iron Mountain boasts a stable and resilient core storage and records management business. A recurring revenue business model and a well-diversified tenant base assure steady cash flows. The company’s accretive buyouts and expansion efforts toward fast-growing businesses, like that of the data center, bode well for growth. A healthy balance sheet is likely to support the company’s growth endeavors.

Analysts also seem bullish on this Zacks Rank #2 (Buy) stock. The Zacks Consensus Estimate for 2024 adjusted funds from operations (AFFO) per share has been revised two cents upward to $4.51 over the past three months. The same for 2025 has been raised marginally northward to $4.91 over the past two months.

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Factors Behind the Surge in IRM Stock Price: Will This Last?

Iron Mountain enjoys a steady stream of recurring revenues from its core storage and records management businesses. The company derives a majority of its revenues from fixed periodic (usually earned on a monthly basis) storage rental fees charged to customers based on the volume of their records stored. Its retention rate for its records management business was 92.7% in the third quarter.

Iron Mountain’s diversified tenant base is a positive. The company serves more than 240,000 clients across different industries and geographical locations. Most importantly, no single customer accounted for more than 1% of its revenues in 2023, which reflects a well-diversified revenue generation base.

Iron Mountain is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. It is making organic growth efforts, along with expansion projects and developments. In the third quarter of 2024, the company attained data center revenue growth of 20.9%.

Iron Mountain’s healthy balance sheet position, along with ample financial flexibility, has enabled it to capitalize on long-term growth opportunities. IRM had total liquidity of approximately $2 billion as of Sept. 30, 2024, with net lease-adjusted leverage of 5.0X, the lowest level since before the company’s REIT conversion in 2014.

Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Iron Mountain remains committed to that. In August 2024, concurrent with its second-quarter 2024 earnings release, it announced a 10% hike in its cash dividend to 71.5 cents per share from 65 cents paid out earlier. Given its healthy operating platform, our year-over-year AFFO growth projections of 10.1% for 2024, a lower-than-industry payout ratio and a solid financial position, the increased dividend is likely to be sustainable in the forthcoming period.

Key Concerns for Iron Mountain

Although Iron Mountain offers compelling products and has a strong market position, the company faces significant competition. Going forward, this is likely to result in aggressive pricing and keep margins under pressure.

Despite the Federal Reserve announcing rate cuts recently, the interest rate is still high and is a concern for Iron Mountain. Elevated rates imply higher borrowing costs for the company, affecting its ability to purchase or develop real estate. As of Sept. 30, 2024, Iron Mountain’s net debt was approximately $13.31 billion. For 2024, our estimate indicates a year-over-year rise of 20% in the company’s net interest expenses.

Other Stocks to Consider

Some other top-ranked stocks from the broader REIT sector are Welltower Inc. WELL and Terreno Realty TRNO, 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 Welltower’s 2024 FFO per share has been revised marginally northward over the past month to $4.30.

The Zacks Consensus Estimate for Terreno Realty’s 2024 FFO per share has moved marginally northward in the past month to $2.42.

Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.

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