Equinix Converting To A REIT In 2015: Should Investors Buy Shares Now?

Sep.14.12 | About: Equinix, Inc. (EQIX)

Shares of data center company Equinix, Inc. (NASDAQ:EQIX) shot up over 7% yesterday, after it was announced that the company would transform into a real estate investment trust. There had been rumors of Equinix getting the REIT treatment for several months. Other technology companies like Iron Mountain Inc. (NYSE:IRM) and American Tower Corporation (NYSE:AMT) have seen their share prices respond well to conversion into REITS. Will Equinix shareholders be rewarded as the company transforms its structure?

Equinix owns data centers that are responsible for managing web traffic, managing mobile applications, and managing online video. The company operates in the following industries:

  • Cloud & IT Services
  • Content & Digital Media
  • Enterprise
  • Financial Services
  • Mobility
  • Networks
  • Federal Government

Over 4000 companies use Equinix data centers to power their business. Among these customers are:

  • AT&T, Verizon, Sprint, Level 3, Tata, Telefonica, Microsoft, Hulu, Facebook, Netflix, Zynga, Etsy
  • Broken down by sector, here is the companies key customer groups:
  • 400 + Asset managers & brokerages
  • 75 + Exchanges & trading platforms
  • 150 + Technology & service providers

Equinix has data centers in 38 markets in 13 countries. In 2011, Equinix took controlling interest in ALOG Data Centers in Brazil to further its international expansion. Here is a look at the regions Equinix operates in:

  • Americas: United States, Canada, Brazil
  • EMEA: Netherlands, Germany, France, Switzerland, United Kingdom
  • Asia Pacific: Japan, Singapore, Australia, China, Hong Kong

The company's estimated breakdown of revenue for 2015 is:

  • 54%: United States
  • 5%: Brazil
  • 1%: Canada
  • 20%: EMEA
  • 20%: Asia Pacific

The company will convert to a REIT by the beginning of 2015. REITS, of course, have to pay out 90% of their income to their shareholders. Prior to the conversion, Equinix will make a one-time payment of $700 million to $1.1 billion. The payout will be 20% cash and 80% in the form of shares. The payout represents the company paying out past earnings as it converts to the REIT status.

Analysts on Yahoo Finance are calling for Equinix to earn $0.60 per share in the third quarter. These earnings are based on revenue of $495.19 million. For fiscal 2012, analysts see the company earning $2.68 per share from $1.93 billion. The following year, analysts are predicting earnings per share of $3.85 from $2.25 billion in revenue. Equinix has a goal of reaching $3 billion in revenue by 2015. Equinix is calling for revenue of $492-$498 in the third quarter. For the fiscal year, the company sees itself posting revenue of $1.92 billion.

Shares of Equinix sit at $200.50 with yesterday's price jump. The 52-week range of the shares is $92.43 to $212.00. On a price to earnings base, shares look rather expensive. Yesterday's announcement is likely to lead to increased analyst awareness and coverage on Equinix. The conversion to a REIT will also lead to new mutual funds being able to purchase the stock in both the REIT and dividend specialties. I like the long-term, three-year plan to reach $3 billion in revenue. The company is growing and putting up great earnings per share growth numbers. Look for a pullback before the shares are worth buying.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.