On Tuesday, Deutsche Bank has adjusted its price target for Digital Realty Trust (NYSE:DLR), a leading global provider of data center, colocation, and interconnection solutions. The new price target is set at $159.00, down from the previous target of $185.00. Despite this reduction, the firm has opted to maintain a Hold rating on the company's shares.
The revision of the price target comes as the analyst recalibrates the valuation metrics for Digital Realty Trust. The previous 12-month price target of $185.00 was determined by averaging two key figures: a Discounted Cash Flow (DCF) valuation of $187.00 and a Price/AFFO (Adjusted Funds From Operations) multiple of $181.00.
The DCF valuation was calculated using a terminal growth rate of 3.5% and a Weighted Average Cost of Capital (WACC) of 6.5%, which is a slight increase from the prior 6.4%. This change reflects a modestly higher relative weighting of equity within the WACC calculation.
The P/AFFO multiple, which was previously set at 25 times the estimated 2025 AFFO, has been increased to 28 times. This adjustment is based on Digital Realty Trust's accelerated growth expectations for future periods, which surpass previous forecasts.
The analyst from Deutsche Bank has provided a detailed commentary on the valuation process. The methodology involves a blend of DCF and P/AFFO calculations to arrive at the price target. The increase in the P/AFFO multiple is indicative of the firm's positive outlook on Digital Realty Trust's growth trajectory, while the WACC adjustment suggests a nuanced approach to the company's cost of capital considerations.
Digital Realty Trust's new price target of $159.00 reflects the latest analysis and valuation models from Deutsche Bank, taking into account the company's financial projections and market conditions. The Hold rating suggests that while there may be positive attributes to the company's financial outlook, the current market price may already account for these factors.
In other recent news, Digital Realty Trust has demonstrated a robust financial performance, surpassing market expectations with a Funds From Operations (FFO) of $1.67, slightly ahead of the consensus estimate of $1.66. The company's financial success is backed by strong core metrics, including improved occupancy and rent spreads. Notably, Digital Realty announced record bookings worth $521 million, more than twice their previous record, and renewal rates for the segment exceeding 1 megawatt showed strength at 31.4%.
Mizuho has reaffirmed its Outperform rating on Digital Realty, maintaining a steady price target of $170.00, while RBC Capital Markets has raised its target for the company to $207, citing the company's record backlog and advantageous lease escalators as key factors in their decision. In light of these developments, Digital Realty has adjusted its guidance midpoint by $0.025, now projecting $6.70, slightly above the Street's expectation of $6.66.
The company's Q3 2024 performance was record-breaking, with new leasing volume and the backlog of leases set to commence indicating strong demand for data center capacity. Digital Realty's management has also released updated guidance for 2024, projecting midpoints for revenues at $5.58 billion, EBITDA at $2.95 billion, capital expenditures at $2.30 billion, and core FFO per share at $6.70.
InvestingPro Insights
Digital Realty Trust's recent performance and financial metrics offer additional context to Deutsche Bank's analysis. According to InvestingPro data, the company's market capitalization stands at $61.91 billion, with a P/E ratio of 52.61. This relatively high P/E ratio aligns with one of the InvestingPro Tips, which notes that DLR is "Trading at a high earnings multiple."
The company's strong recent performance is evident in its price returns, with a 25.49% total return over the past three months and a remarkable 54.9% return over the last year. This robust performance is reflected in another InvestingPro Tip, which highlights DLR's "Strong return over the last three months."
Notably, Digital Realty Trust has maintained dividend payments for 21 consecutive years, demonstrating a commitment to shareholder returns. The current dividend yield is 2.66%, which may be attractive to income-focused investors.
For those seeking a more comprehensive analysis, InvestingPro offers 17 additional tips for Digital Realty Trust, providing a deeper understanding of the company's financial health and market position.
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