Why You Should Retain Equinix (EQIX) Stock In Your Portfolio

A successful portfolio manager is aware of the importance of having well-performing stocks in one’s portfolio. Indicators of a stock’s consistent performance include a rise in share price and strong fundamentals.

One such stock that investors need to hold on to right now is Equinix Inc. (NASDAQ:EQIX) . Though there are a few concerns, these are short lived. The stock has the potential to perform well in the long run.

Equinix’s share price movement has been quite encouraging. Year to date, its shares have gained 25.9%, while the industry to which it belongs to recorded a decline of 7.7%.

What’s Driving Equinix?

Equinix is a global provider of network-neutral data centers and internet exchange services for enterprises, content companies, systems integrators and network service providers. The company is on a growth trajectory, gathering momentum from its positive earnings surprise history and robust fundamentals.

It delivered a positive earnings surprise in three out of the last four quarters, with an average positive surprise of 5.5%.

Last quarter, Equinix reported solid year-over-year improvement in revenues as well as earnings. The year-over-year improvement was primarily driven by strong booking activity, Equinix's global platform, continued enterprise momentum and the acquisition of 29 Verizon data centers. Equinix witnessed revenue growth across all three geographic regions and verticals.

Equinix, Inc. Price and Consensus

Equinix, Inc. Price and Consensus | Equinix, Inc. Quote

Acquisitions have been a major contributor to growth at Equinix. The company has made several moves for expanding its data center capacity in many of its key markets since 2003. In Dec 2016, it entered into a definitive agreement to acquire 24 data center sites, including 29 data center buildings in operation across 15 metro areas, from Verizon Communications (NYSE:VZ) , for a total cash consideration of $3.6 billion.

Bottom Line

Expansion in important markets and consolidation of facilities in existing ones are important parts of Equinix's core strategy. The company strives to boost its revenue base as well as profitability, by offering upgraded technology to clients. Moreover, its recurring revenue model has provided the much-needed support to the company's revenue stream over the years. The company's cloud and IT service businesses are its fastest growing segments, and account for roughly one fourth of its total revenue.

Further, Equinix remains positive on the growing demand for data centers. To meet the rising demand for cloud services, this global interconnection and data center company is expanding its IBX data centers globally, and gaining popularity among tech companies looking for data management. Thus, the company expects its total addressable market for retail data centers to increase at a compound annual growth rate (CAGR) of 8% from 2013 to 2017 and reach $24.0 billion. Based on this, Equinix projects revenue growth rate of 10% through 2017.

Additionally, the company’s earnings are projected to grow 15.3% in the long term and it has a Growth Style Score of B.

Nonetheless, we are slightly concerned about the company’s growing debt burden, which will affect operating results as interest expense are likely to go up. Moreover, intensifying competition from established internet data center operators such as AT&T (NYSE:T) and CenturyLink Inc. (NYSE:T) may affect product pricing, thereby denting Equinix’s margins.

Equinix has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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