Will High Cloud Adoption Propel Equinix (EQIX) Q3 Earnings?

Zacks Equity Research
·4-min read

Equinix, Inc. EQIX will report third-quarter 2020 results on Oct 28, 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 6.2% in terms of adjusted FFO per share. The upside primarily stemmed from robust top-line growth, marking the 70th quarter of consecutive revenue growth.

The company has a remarkable streak of beating FFO estimates over the past four quarters. Equinix surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the beat being 3.5%, on average.

Equinix, Inc. Price and EPS Surprise

 

Equinix, Inc. Price and EPS Surprise
Equinix, Inc. Price and EPS Surprise

Equinix, Inc. price-eps-surprise | Equinix, Inc. Quote

Let’s see how things have shaped up prior to this announcement.

Factors at Play

Following the impressive first half of 2020, data center REITs are expected to have enjoyed strong leasing in the third quarter as well, driven by the massive work-from-home environment. Moreover, the pandemic has accelerated the pace at which enterprises are making digital transformations.  This too is augmenting the demand for data centers.

Amid these strong demand drivers, Equinix’s portfolio of International Business Exchanges or IBX data centers is well-positioned to have witnessed a robust demand for highly interconnected data-center space from cloud and Internet customers. In fact, in July, Alibaba Group Holdings partnered with Equinix to expand its cloud services to 17 metros in Europe, America and the Asia Pacific.

Notable acceleration in enterprise cloud adoption and robust demand for highly interconnected data center space by cloud or Internet customers is expected to have driven Equinix’s recurring interconnection revenues for the quarter under review. In fact, the Zacks Consensus Estimate for the same is pinned at $256 million, suggesting 12.8% growth from the prior year’s reported figure.

Further, a stable base of contracted recurring interconnection and collocation revenues is expected to have boosted the company’s third-quarter revenue growth. Overall, the consensus estimate for third-quarter 2020 revenues is pinned at $1.50 billion, suggesting a 7.6% year-over-year improvement. Management expects quarterly revenues of $1.49-$1.51 billion.

Moreover, leveraging on the growing demand for crucial data-center space, Equinix is expected to have increased cabinet equivalent billing. Notably, the Zacks Consensus Estimate for third-quarter 2020 cabinet equivalent billing is pinned at 247,384, suggesting a 5% rise from 235,600 reported in third-quarter 2019.

Lastly, prior to the third-quarter earnings release, the Zacks Consensus Estimate for third-quarter FFO per share has been witnessing downward estimate revision, indicating bearish analyst sentiments. In fact, third-quarter FFO per share estimates have been revised marginally downward to $6.04 over the past month. Nevertheless, the figure suggests a year-over-year increase of 9.4%.

Earnings Whispers

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 this quarter.

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 +0.14%

Zacks Rank: Equinix currently carries a Zacks Rank of 3.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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 too have the right combination of elements to report a beat this quarter:

Lexington Realty Trust LXP, set to report quarterly numbers on Nov 5, currently has an Earnings ESP of +1.33% and a Zacks Rank of 3.

National Storage Affiliates Trust NSA, slated to release third-quarter earnings on Nov 5, has an Earnings ESP of +4.88% and a Zacks Rank of 2 (Buy) at present.

Ventas, Inc. VTR, slated to release third-quarter earnings on Nov 6, has an Earnings ESP of +2.03% and a Zacks Rank of 3 at present.

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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