Here's How Equinix (EQIX) Looks Just Ahead of Q2 Earnings
Equinix, Inc. EQIX will report second-quarter 2020 results on Jul 29, after market close. The company’s quarterly results are expected to reflect year-over-year growth in revenues and funds from operations (FFO) per share.
In the last reported quarter, this global connectivity leader delivered a surprise of 3.8% in terms of adjusted FFO per share. Theupside primarily stemmed from robust top-line growth, marking the 69th quarter of consecutive revenue growth.
The company has a remarkable streak of beating earnings estimates over the past four quarters. Equinix surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the beat being 3.33%, on average.
Equinix, Inc. Price and EPS Surprise
Let’s see how things have shaped up prior to this announcement.
Factors at Play
The massive work-from-home environment due to the COVID-19 pandemic is expected to have driven material demand for highly interconnected data-center space from cloud and Internet customers. This sudden incremental network demand, stemming from an increase in remote working, is a positive for the data-center industry and is expected to have benefited Equinix in some of its high-margin product lines during second-quarter 2020.
Additionally, the situation highlights the importance of real-time, on-demand scalability that the company provides through services like Cloud Exchange Fabric (ECX Fabric) and Network Edge. In light of the growing demand for colocation and inter-connection services as well as higher demand from cloud users, Equinix increased its asset coverage and enhanced capabilities during the second quarter.
In fact, in April, the company launched its largest expansions of ECX Fabric, making the global interconnection service available at seven locations across the EMEA region.It also signed a $1-billion joint venture in the form of a limited liability partnership with GIC — Singapore's sovereign wealth fund — to develop and operate xScale data centers in Japan. In June, the company added an International Business Exchanges data center in the Dallas Infomart Data Center campus.
These efforts are expected to have driven an increase in Equinix’s cabinet capacity and cabinet equivalent billing. Notably, the Zacks Consensus Estimate for second-quarter 2020 cabinet capacity is pegged at 308,091, suggesting a rise from 300,000 reported in first-quarter 2020. Further, cabinet equivalent billing is expected to increase from 237,600 to 241,677 over the same period.
Further, a stable base of contracted recurring revenuesis expected to have driven the company’s second-quarter revenue growth. Notably, the Zacks Consensus Estimate for recurring revenues from the United States is peggedat $647 million, suggesting 5.2% growth from the prior-year quarter’s reported figure.
Moreover, the consensus estimate for second-quarter 2020 revenues is pinned at $1.46 billion, suggesting a 5.5% year-over-year improvement. Management expects June-end quarterly revenues of $1.44-$1.46 billion.
However, the company is expected to have incurred integration costs relating to its previous acquisitions. Further, the competitive landscape in the data-center real estate industry is likely to have caused pricing pressure. These are expected to have impacted its bottom-line growth in the quarter.
Prior to the second-quarter earnings release, there is a lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects. The Zacks Consensus Estimate for second-quarter FFO per share has been unchanged at $5.98 over the past month. Nevertheless, the figure suggests a year-over-year increase of 1.9%.
Equinix has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of a FFO beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: Equinix has an Earnings ESP of +0.12%
Zacks Rank: Equinix currently carries a Zacks Rank of 3.
Other Stocks That Warrant a Look
Here are a few other stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a beat this quarter:
STAG Industrial Inc. STAG, set to report quarterly numbers on Jul 28, currently has an Earnings ESP of +1.80% and a Zacks Rank of 3.
Iron Mountain Incorporated IRM, slated to release second-quarter earnings on Aug 6, has an Earnings ESP of +4.76% and a Zacks Rank of 3 at present.
SBA Communications Corporation SBAC, set to report quarterly numbers on Aug 3, currently has an Earnings ESP of +4.48% and a Zacks Rank of 3.
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.
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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.