Equinix Upgraded to Outperform

We recently upgraded our long-term rating on Equinix Inc. (EQIX), a leading provider of data center solutions, to Outperform from Neutral. The rating was upgrade on the back of third-quarter 2010 earnings results, which were in line with the Zacks Consensus Estimate.

The upgrade was driven by strong demand across international markets, especially in the global data center services segment, encouraging fourth quarter and fiscal 2010 guidance and continuous efforts to expand the current facilities.

Third Quarter: Looking Back

Equinix’s third-quarter adjusted earnings per share of 27 cents were in line with the Zacks Consensus Estimate. However, revenue of $330.3 million was above the Zacks Consensus of 329.0 million. Both recurring and non-recurring revenues witnessed more than 45.0% year-over-year growth.

Cash gross margin (excluding depreciation, amortization and stock-based compensation) increased 100 basis points year over year to 65.0%.

Reported net income in the quarter came in at $11.2 million or 24 cents per diluted share versus net income of $18.8 million or 47 cents in the year-ago quarter. However, excluding restructuring charges and acquisition costs but including stock-based compensation, adjusted net income came in at $12.6 million or 27 cents.


For the fiscal 2010, Equinix expects total revenue to range between $1.21 billion and $1.22 billion. Cash gross margin is expected to be around 65%. Cash selling, general and administrative expenses are expected to be approximately $250.0 million. Adjusted EBITDA is expected around $542.0 million.

Capital expenditures are expected in the range of $560.0 to $580.0 million, comprising approximately $110.0 million of ongoing expenditures and $450.0 to $470.0 million of expansion activity.

For fiscal 2011, Equinix’s revenue is expected to be greater than $1.50 billion. Adjusted EBITDA is expected to be about $675.0 million. Capital expenditures are expected to be around $400.0 milion.

Our Take

Market Research firm Interactive Data Corp. expects carrier-neutral co-location market to grow at a four-year CAGR of 23% to €2.0 billion in 2013 impacted by strong demand. We believe Equinix is well positioned to capitalize on growing market demand, as many service providers and enterprise network operators are already moving toward the evaluation and deployment of next-generation Ethernet services.

Moreover, we remain encouraged with Equinix’s facility expansion. In September, company announced its plans to build its third International Business Exchange (IBX) data center in Tokyo, TY3.

Tokyois a strategic market for Equinix due to the region’s access to bandwidth cable systems, and is regarded as the dominant market with respect to emerging wireless Internet access technology and networks in Asia. The TY3 IBX illustrates Equinix’s focus on this strategic market and its ability to add customer-driven capacity to its global platform.

Equinix competes with leading network providers such as AT&T Inc. (T) and Verizon Communications Inc. (VZ).

Currently, Equinix has Zacks #1 Rank, implying a short-term Strong Buy rating.

EQUINIX INC (EQIX): Free Stock Analysis Report

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