A month has gone by since the last earnings report for Equinix (EQIX). Shares have lost about 3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Equinix due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers. <p style="text-align: justify;"><u><strong>Equinix AFFO Tops Estimates in Q2, Revenues Rise Y/Y</strong></u><br /><br />Equinix posted better-than-expected results for second-quarter 2018, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and improved from the year-ago quarter as well.<br /><br />The company's AFFO advanced from $4.59 per share reported in the year-earlier quarter to $5.37 per share. The Zacks Consensus Estimate was pegged at $5.06. The uptick primarily stemmed from robust top-line growth and strong operating performance, partially offset by an elevated cost of revenues.<br /><br /><strong>Quarter in Detail</strong><br /><br />Total revenues came in at $1.26 billion, up 18% from the prior-year quarter, beating the Zacks Consensus Estimate of $1.2 billion. Encouragingly, this also marks the 62nd quarter of consecutive revenue growth.<br /><br />Equinix continues to witness solid demand for cloud services from corporations interested in enhancing firms' networks. The company witnessed revenue growth across all three geographic regions and verticals. Stellar growth in the global Colocation and Interconnection platforms bolstered the top line.<br /><br />Recurring revenues came in at $1.19 billion (94.2% of total revenues), up approximately 17.5% from the year-ago tally. Non-recurring revenues climbed 31.6% to $74.1 million (5.8% of total revenues).<br /><br />Revenues from the three geographic regions increased on a year-over-year basis as well. Revenues from the Americas, EMEA and the Asia Pacific were up 15.9%, 18.6% and 11.5% to $618.3 million, $383.2 million and $260.5 million, respectively.<br /><br />Gross margin was 48.3%, marginally down from 51% reported in the comparable period last year, primarily due to elevated cost of revenues as a percentage of sales. Total operating expenses flared up around 10% to $395.1 million. Nonetheless, operating expenses contracted 300 basis points (bps) as a percentage of revenues to 31%.<br /><br />Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $604 million, up 18.6%. Adjusted EBITDA margins came in at 48% flat year over year. AFFO increased 18.9% to $428 million during the June-end quarter.<br /><br /><strong>Balance Sheet & Cash Flow</strong><br /><br />Equinix exited the second quarter with cash, cash equivalents and short-term investments of $984.5 million. The company's total debt principal outstanding was $11.5 billion as of Jun 30, 2018. It generated cash of $538.7 million from operating activities in the quarter under review.<br /><br /><strong>Guidance</strong><br /><br />Equinix provided an outlook for the third quarter and revised a few full-year 2018 projections.<br /><br />For 2018, the company now anticipates revenues of $5.037-$5.077 billion (prior guidance was $5.082-$5.122 billion), reflecting an increase of 16% year over year. The company predicts adjusted EBITDA to be in the range of $2.379-$2.419 billion (prior guidance was $2.395-$2.435 billion).<br /><br />Equinix anticipates full-year 2018 AFFO to be in the $1.596-$1.636 billion band, reflecting year-over-year growth of 12%. Earlier, the AFO figure was estimated between $1.595 billion and $1.635 billion.<br /><br />Coming to the third quarter, Equinix expects revenues in the range of $1.27-$1.28 billion. Adjusted EBITDA is expected to lie between $591 million and $601 million.<br /><br /> </p>
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Equinix has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Equinix has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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