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Equinix (EQIX) Poised for Long-Term Growth Despite Risks

A successful portfolio manager is aware of the fact that adding well performing stocks at the right time is of vital importance. Indicators of a stock's bullish run include a rise in its share price and strong fundamentals.

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

Equinix's share price movement has been quite favorable. Year to date, its shares have gained 18.13% compared with just 0.85% increase recorded by the Zacks categorized Reit-Equity Trust- Retail industry.

What's Driving Equinix?

Equinix posted strong third-quarter 2016 results, wherein both the top and the bottom line not only came ahead of the Zacks Consensus Estimate but also increased significantly from the year-ago quarter. The year-over-year improvement was mainly driven by strong booking activity, net positive pricing actions, and the acquisitions of Telecity and Bit-isle.

Buoyed by the strong top-line performance in the third quarter, Equinix raised its full-year revenue guidance. Anticipating contributions from the acquisitions of Telecity and Bit-isle, the company now projects revenues to come between $3.609 billion and $3.615 billion (mid-point $3.612 billion), which exceeds its previous guidance range of $3.598 billion and $3.608 billion (mid-point $3.603 billion). Telecity and Bit-isle are anticipated to contribute $553 million to $559 million to the company's total revenue.

Equinix is presently focusing on improving customer experience through the Equinix Customer One program. We are also optimistic on the company's recurring revenue model and expansion plans announced in March this year.

Equinix operates across various geographical regions and is becoming increasingly popular among major players in the tech industry for data management, which should drive its revenues going ahead.

After completing the acquisition of Telecity Group Plc this year, Equinix entered into another deal to buy certain data center assets from Verizon Communications Inc. VZ in the first week of December.

Further, Equinix remains positive on growing demand for data centers. To meet the growing demand for cloud services, the 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 CAGR of 8% from 2013 to 2017 and reach $24.0 billion. Based on this projection, Equinix projects revenue growth rate of 10% through 2017.

We believe that by acquiring data center assets from Verizon, Equinix will be in a better position to capitalize on this opportunity. Furthermore, the deal will help the company in further strengthening its global footprint and bring in additional revenues by adding approximately 900 customers.

The stock's long-term earnings per share growth rate is 17.4% and it carries a Value Growth Score of "B." The company also has an average positive surprise of 9.6%.

However, intensifying competition from established Internet data center operators such as AT&T T and CenturyLink Inc. CTL may affect product pricing, thereby denting Equinix's margins.

A highly-leveraged balance sheet and industry consolidation add to its woes.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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