Iron Mountain Incorporated IRM is well-poised to benefit from its recurring revenue business model and expansion into the data center business. A well-diversified tenant base assures steady cash flows. A healthy balance sheet will likely support its growth endeavors over the long term.

Shares of this Zacks Rank #2 (Buy) company have rallied 24.9% over the past three months, outperforming its industry's growth of 12.7%. Given the strength in its fundamentals, there seems to be additional room for growth of this stock.

Image Source: Zacks Investment Research

Factors That Make Iron Mountain a Solid Pick

Business Model: This Boston, MA-based real estate investment trust (REIT) has stable and resilient core storage and records management businesses. It derives the 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. This assures a steady stream of recurring revenues for the company.

In the second quarter of 2024, Iron Mountain’s organic storage rental revenue increased 10.1% from the prior-year quarter. The benefit was driven by revenue management in its Global RIM Business segment, as well as by growth in its Global Data Center Business segment, on the back of lease commencements. We estimate a year-over-year increase of 9.6% in storage rental revenues in 2024.

Diverse Tenant & Revenue Base: Iron Mountain enjoys a diversified tenant and revenue base and serves more than 240,000 clients across different industries and locations. No single customer accounted for more than 1% of its revenues in 2023, reflecting a well-diversified revenue generation base.

Expansion Efforts: This REIT has been expanding its fast-growing businesses, especially the data center segment, to supplement its storage segment performance. Given the strong demand for connectivity, interconnection and colocation space, demand for data centers is likely to rise in the coming years, poising this segment well for growth.

It leased 66 megawatts of data center capacity in the quarter, totaling 97 megawatts in the first six months of 2024. Due to the company’s strong pipeline, management is confident to exceed its original projection of 100 megawatts and now expects to lease 130 megawatts for the year.

FFO Growth: Over the past three to five years, IRM recorded FFO per share growth of 16.32% compared with the industry’s average of 4.34%. Moreover, the company has reaffirmed its adjusted funds from operations per share guidance for 2024 and now expects it to be toward the upper-end range of $4.39-$4.51.

Analysts also seem bullish regarding IRM’s FFO per share growth prospects. The Zacks Consensus Estimate for the company's 2024 FFO per share has been revised marginally upward over the past three months to $4.49, suggesting 9% growth year over year.

Balance Sheet Strength & Cash Flow: Iron Mountain maintains a healthy balance sheet position with ample financial flexibility to meet its near-term debt obligations and other capital commitments while pursuing growth opportunities. As of June 30, 2024, it had $2.3 billion of total liquidity and no significant debt maturities until 2027. Such a strong financial footing is likely to support its growth endeavors in the future.

Additionally, IRM’s current cash flow growth is projected at 4.46% against the 4.03% decline estimated for the industry.

Its trailing 12-month return on equity is 595.44% compared with the industry’s average of 3.21%. This reflects that the company is more efficient in using shareholders’ funds than its peers.

Other Stocks to Consider

Some other top-ranked stocks from the broader REIT sector are Welltower WELL and Stag Industrial STAG, 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 is pegged at $4.19, which suggests year-over-year growth of 15.11%.

The Zacks Consensus Estimate for Stag Industrial’s full-year FFO per share stands at $2.39, which indicates an increase of 4.4% from the year-ago period.

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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Iron Mountain Incorporated (IRM) : Free Stock Analysis Report

Stag Industrial, Inc. (STAG) : Free Stock Analysis Report

Welltower Inc. (WELL) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research