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Key Factors to Impact Digital Realty's (DLR) Q3 Earnings

Digital Realty Trust DLR is scheduled to release third-quarter 2019 results on Oct 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 San Francisco, CA-based data-center real estate investment trust (REIT) delivered a positive surprise of 0.61% in terms of funds from operations (FFO) per share. Results were supported by growth in revenues.

The company has a decent surprise history. In fact, over the trailing four quarters, the company beat the Zacks Consensus Estimate on all four occasions — the average beat being 1.67%. This is depicted in the graph below:

Digital Realty Trust, Inc. Price and EPS Surprise
 

Digital Realty Trust, Inc. Price and EPS Surprise

Digital Realty Trust, Inc. price-eps-surprise | Digital Realty Trust, Inc. Quote

Let’s see how things are shaping up for Digital Realty prior to this announcement.

Factors to Consider

Solid fundamentals of the data-center market are likely to have helped Digital Realty ride on its growth curve in the to-be-reported quarter. Particularly, with growth in cloud computing, Internet of Things and big data, and an increasing number of companies opting for third-party IT infrastructure, demand for space at properties of data-center REITs has been climbing.

Also, the artificial intelligence, autonomous vehicle and virtual/augmented reality markets have been growing at a solid pace, fueling demand for such real estates. In fact, demand is outpacing supply in top-tier data-center markets and despite enjoying high occupancy, these markets are absorbing new construction at a faster pace.

Amid these, Digital Realty is banking on strategic acquisitions and development efforts for building a premium portfolio of high-quality facilities located across North America, Europe, Latin America, Asia and Australia. The company’s presence in strategic locations is helping it offer data-center, colocation and inter-connection solutions for domestic and international tenants efficiently.

In fact, the full spectrum of data-center solutions across a global platform is likely to have helped the company achieve growth in customers, with several having multiple locations across the portfolio. Also, significant customer investment is likely to have ensured stable retention.

Therefore, such expansion efforts are likely to have driven the company’s top and bottom lines in the quarter under consideration. Amid these, the Zacks Consensus Estimate for the third-quarter total revenues is $815.1 million, indicating 6% year-over-year growth.

However, competition has intensified, given the solid growth potential in the data-center real estate market. This is likely to have led to aggressive pricing pressure in the quarter under review. In addition to this, interest-expense burden remains a concern, with the company having a substantial debt position.

Amid these, Digital Realty’s activities during the quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for the third-quarter FFO per share remained unchanged at $1.64 in a month’s time. However, it indicates improvement of 0.61% from the year-ago quarter’s reported figure.

Here is what our quantitative model predicts:

Our proven model predicts a positive surprise in terms of FFO per share for Digital Realty this season around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of a FFO beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Digital Realty has a Zacks Rank #3 and an Earnings ESP of +2.61%.

Other Stocks That Warrant a Look

Here are a few 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 positive surprise this quarter:

Ventas, Inc. VTR, scheduled to release earnings on Oct 25, has an Earnings ESP of +2.02% and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stag Industrial, Inc. STAG, slated to report third-quarter results on Oct 30, has an Earnings ESP of +1.10% and currently carries a Zacks Rank of 3.

Apartment Investment and Management Company AIV, set to report quarterly results on Oct 31, has an Earnings ESP of +0.6% and carries a Zacks Rank of 3, currently.

Note: Anything related to earnings presented in this write-up represent 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.

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