Stephen Quickel: Equinix (EQIX)

By Steven Halpern, TheStockAdvisors.com | Jan 06, 2010 | comment

"Equinix (NASDAQ: EQIX), the global data center operator, is one of the most tempting growth stock opportunities on the 2010 horizon," says Stephen Quickelin his US Investment Report.

"The Silicon Valley-based company, barely ten years from startup, has moved quickly to open 45 data full-service centers serving clients in 18 key regions of the U.S., Europe and Asia-Pacific areas.

"These centers provide data management services to global enterprises of all sorts, including content and financial companies and network service providers.

"Big banks, market data providers, telecoms and other technology-driven clients use the firm's data center platforms to reduce their own capital expenditures and operating costs.

"With demand rising rapidly, Equinix, has been able to lift revenues from $118 million in 2003 to $705 million in 2008, and to an estimated $880 million in recessionary 2009. Analysts project $1.17 billion in 2010—a two-year rise of 67%.

"As for earnings, the rapidly expanding company showed deficits for its first eight years, but reduced them in all but one year. Now firmly in the black and established as a sector leader, its gains could be large over the next few years.

"Rapid expansion of its IBX centers (short for International Business Exchanges) has required considerable debt. The latest available debt/equity ratio is an elevated 1.27.

"But capital spending is leveling off, and Smith and his managers have kept of tight rein on operating costs.

"Earnings have risen 26 quarters in a row. After tax margins are reportedly at a four-year high. Third quarter 2009 earnings jumped 213% year-over-year, beating analyst estimates by 57%.

"Zacks reports consensus five-year earnings growth projection of 18.4% a year going forward. First Call shows earnings up 26% in 2010 and more than 40% in 2011.

"Those eye-catching numbers have not gone unnoticed. EQIX is not cheap by conventional measures. At 105 in late December (up from 40 in March), it traded at 51 times FC’s 2010 earnings projection and 34 times its 2011 estimate.

"But the stock has impressive support. Among 26 brokers—a large following for a young $4-billion market cap stock—15 rated it a Strong Buy in December, 3 a Buy and 8 a Hold, with no Sells.

"Goldman Sachs, altogether, owns 12.5% of the outstanding shares, with Wellington Management and Shumway Capital Partners each holding 8%-plus. Wells Fargo, Barclays, Morgan Stanley and Vanguard also have large positions.

"Of course, the Big Boys bought in at lower levels and have added shares along the way—and will doubtless continue to do so.

"With its high debt and P/E, it’s not the kind of play-it-safe stock that attracted investors in late 2009. But as we head into 2010, few mid-caps have emerged with more fascinating near- and long-term growth possibilities."

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