CyrusOne: This Fast Growing Data Center REIT Rarely Trades At These Levels

Feb. 11, 2019 12:21 PM ETCyrusOne Inc. (CONE)33 Comments

Summary

  • CyrusOne is one of the premier data center REITs. This sector is riding the wave of exponential cloud-based and overall data storage growth.
  • Let me put that into context. This REIT saw greater GAAP revenue in the first three quarters of 2018 than all of 2017.
  • CyrusOne is experiencing the revenue growth of a smaller REIT while building the diversification and scale of a larger one.
  • CyrusOne's stock has increased in a consistently linear fashion since its IPO in 2013. We are in the midst of the third real pullback the stock has ever experienced.
  • A return to the all-time highs that occurred in Q3 2018 results in a 30% gain, but we are aiming higher.
  • Looking for a portfolio of ideas like this one? Members of Institutional Income Plus get exclusive access to our model portfolio. Start your free trial today »

What do autonomous driving, cloud storage, the robotics industry, and the fastest growing CapEx areas of Amazon (AMZN), Google (GOOG) (GOOGL), Alphabet, General Motors (GM), Lyft, and Uber have in common? They all rely on the type of services provided by CyrusOne (NASDAQ:CONE).

Background

Source

CyrusOne (the "Firm") provides mission-critical data center facilities and IT infrastructure for approximately 1,000 customers across the United States, Europe, and Asia, with the addition South America in progress. The Firm's customers include 200 of the Fortune 1000 and nearly half the Fortune 20 (or private/foreign enterprises of similar size), demonstrating the Firm's ability to take on the largest and most technical of projects.

CyrusOne wasn't always a REIT, nor was it always publicly-traded. As an institutional investor, I often work with companies long before they become household names with public investors. CyrusOne converted to a REIT for the 2012 tax year followed by an IPO, and it has provided outstanding returns ever since.

Source: Yahoo Finance

In fact, since inception CyrusOne has smoked the S&P 500 (SPY) and absolutely crushed the Vanguard Real Estate ETF (VNQ). The challenge has been taking advantage of the minimal time it has traded below long-term averages in terms of FFO/AFFO. Albeit a modest discount, this is one of those times.

Landscape

CyrusOne, CoreSite Realty (COR), Digital Realty (DLR), QTS Realty (QTS), and Equinix Inc. (EQIX) are the major players in the data center segment. Let's do a quick analysis, leveraging the research we, at Williams Equity Research, have on tap internally, coupled with information from Fast Graphs. Please keep in mind that CyrusOne does not report Q4 results until February 21st before boldly asking why we didn't include Q4 results in the comments.

FFO Per Share Growth (Q3 2016-Q3 2018)

#1 EQIX @ 18%

#2 COR @ 9%

Thank you for reading. Please let us know if you have any ideas you'd like us to explore.

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This article was written by

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Williams Equity Research ("WER") is led by two portfolio managers with 30 years of combined market experience as hedge fund analysts, traders, due diligence officers, and leading complex and alternative investment research for large institutions. The portfolio managers have a CFA, BS in Business, BA in Economics, and MS in Engineering between them as well as numerous security licenses. WER analyzes individual stocks across all asset classes and global markets with a specialization in income, commodities, international stocks, and special situations.

Institutional Income Plus, WER's marketplace service, is its primary focus and applies an institutional quality risk management framework to investment opportunities in REITs, BDCs, dividend stocks, and credit oriented Closed-end funds and interval funds.

Disclosure: I am/we are long CONE, COR. 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.

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