Seeking Alpha

Macquarie joins the bears on Digital Realty

  • "On the surface, Digital Realty Trust (DLR -3%) looked attractive to us when we assumed coverage on 12/13/2013," says analyst Kevin Smithen, cutting the stock to Underperform with $43 price target (from $54). "After crunching the numbers and digging into the competitive landscape with our cloud research team, we expect the recent rally in DLR shares to reverse."
  • Though not in the same class with some who question the sustainability of DLR's payout in the short-term, Smithen does see a deteriorating business model "due to cyclical, competitive and structural reasons after several years of strong growth and high returns."
  • His team cuts expected 2014 FFO per share to $4.86 from $4.93.
Comments (3)
  • GAP67
    , contributor
    Comments (15) | Send Message
     
    Maybe I just dont WANT the stock to go to $43 (since I am long DLR), but I just cant see it going that low. Even at $4.86 FFO, a reasonable 11x that amount would be a price of $53.46. Not sure how discounted he thinks FFO should be? The yield (if the dividend is maintained) would also be through the roof. I dont think investors are going to allow the yield to go so high in this rate environment. I admit I am not an expert on REITs but this company seems solid; the mysterious "cloud" still needs places to store servers.
    29 Jan, 11:26 AM Reply Like
  • User 6418851
    , contributor
    Comments (75) | Send Message
     
    Exactly. A 1.5% cut in expected FFO deserves a 19% whack in price???
    29 Jan, 11:51 AM Reply Like
  • robrules
    , contributor
    Comments (4) | Send Message
     
    I am long this stock as well, and think these analysts really don't grasp the barriers to entry into this industry. DLR has been growing, expanding, and reporting great numbers (with the exception of the GAAP-non cash adjustment from last quarter). With interest rates hovering at the lowest level in years, the leveraged returns that DLR is getting on these investments is easily double digit enabling the dividend to continue, it not increase. I think the bears at some point are going to get slammed. Did anyone see the 13G filed by blackrock indicating they now own 7.3% of the shares?
    29 Jan, 12:05 PM Reply Like
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