Iron Mountain Offers The Best Of Both Worlds

Summary

• Iron Mountain appears to be doing rather well with record fourth quarter results.
• It's seeing strong data center growth and is closing deals around the world.
• I also highlight the dividend, outlook, valuation, and other important points.
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There are some stocks that offer stability and others that offer growth, and many investors will try to build a portfolio around these two themes through diversification. Such a strategy may involve having to own stocks that may not pay a dividend or maybe a low one, like Nvidia (NVDA), for example.

However, once in a while comes along a stock that offers investors the best of both worlds, and such I find the case to be with Iron Mountain (NYSE:IRM). IRM has done well since I last spotted a dip-buying opportunity at the end of last year, and since giving investors a 6.6% return in less than 2 months.

While IRM is no longer the bargain that it was in late September of this year, I explore why patient investors may still be rewarded over the long run from current levels.

Why IRM?

Iron Mountain Inc. is a global leader in storage and information management services, helping organizations to store, protect, and manage their physical and digital data. The company was founded in 1951 and has since grown to become a Fortune 1000 company with a market capitalization of $15 billion.

Encouragingly, IRM recently posted record fourth quarter results, with revenue rising by 10% YoY (14% excluding FX impact) to $1.3 billion. Importantly, margins are holding steady for IRM in this inflationary environment, as reflected by adjusted EBITDA growing by a similar percentage of 10% YoY (13% excluding FX).

This was driven by robust organic storage rental revenue growth of 11%, due to a nice combination of both volume growth and higher pricing, along with continued data center growth. Importantly, IRM continues to demonstrate its relevancy as a trusted records management partner with new wins that include digitization services. The company's transformation in recent years has made such wins possible as highlighted by management during the recent conference call:

Beginning with our records management business report, we reported a substantial cross sell win with a large non-profit healthcare provider, which has been an Iron Mountain customer for more than 20 years. The win resulted in a new 10-year contract covering records management, ALM, data management, secure storage of non-records and document digitization services taking this customer from $2.5 million per year to $5 million annually.

Just a few years ago, we would have been able unable to provide such a broad range of services and solutions to this long tenured customer. Today, with our broad offerings we not only cross sold the new services and solutions, but we increased our share of wallet for our records management services and solidified our position as a trusted and strategic partner. We also provided a solution for a large U.S. Bank to develop a simple and cost effective process to manage its vast inventory of over 24 million mortgage files.

Looking forward, IRM has a robust growth runway ahead with its data center business, which saw 37% YoY bookings growth during the fourth quarter. For the full year 2022, IRM signed 139 megawatts of new leases, far exceeding its original bookings target of 50 MW and its recent third quarter target of 130 MW. This includes recent closing of deals around the world in Phoenix, Mumbai, and Frankfurt, Germany.

Importantly, IRM carries a strong balance sheet with a net lease adjusted leverage of 5.1x, sitting at its lowest level since 2017. It also has $1.3 billion of liquidity and 78% fixed rate debt, thereby buffering the immediate effects of higher interest rates.

IRM also pays a well-covered dividend that's protected by a 62% payout ratio, based on the midpoint of 2022 AFFO/share guidance of $3.96. This sits well within management's long-term target range of low to mid-60s percent, and suggests that the dividend may resume growth in the near future, either this year or next.

Admittedly, IRM is no longer cheap at the current price of $52.77 with a forward P/FFO of 17.5. However, this may be justified by analysts estimates of 11% to 13% FFO per share growth over the next two years. Analysts also have a consensus Buy rating with an average price target of $61, implying a potential 20% total return over the next year.

Investor Takeaway

Iron Mountain is a well-established and trusted player in the records management industry, and appears to be inflation-resistant with fundamental business growth. This includes both top and bottom line growth by around the same amount, implying steady margins.

Looking forward, IRM has plenty of growth runway in its data center business, as reflected by robust customer wins. Admittedly, IRM is no longer cheap, but could still provide potentially strong long-term returns for investors who prize companies with a stable and growing revenue stream.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of IRM either through stock ownership, options, or other derivatives. 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.

I am not an investment advisor. This article is for informational purposes and does not constitute as financial advice. Readers are encouraged and expected to perform due diligence and draw their own conclusions prior to making any investment decisions.

Comments

[Thraciel]

Bought around $24 - I am having a real hard time to buy more at the current levels. But I am selling Puts at 50 or 47.5$, maybe I will add through these at some point.

[REITInvestor00]

@Thraciel selling some covered calls at these levels can also generate some extra yield. I have been selling them out of the money and have a similar cost basis with a long-term hold. Yield on cost is excellent.

[Thraciel]

@REITInvestor00 unfortunately I did not buy a 100 shares back then…
But you’re right in general following this strategy with two other stocks

[pantherdoc]

IRM has great forward visibility, strong revenue streams, and excellent penetration into the Fortune 1000 companies. It is safe, predictable and has entered businesses with immense total addressable markets.

[usiah]

IRM -- definitely worth hanging on to for this retired income investor.

[southerndividend]

my how things have changed at one time iron mountain was a dog you could not get a positive artical its business was in decline dividend cut was just around the corner i watched when people drove it into the low teens and i kept buying. now it seems everyone is positive i'm glad i did not listen and held on now i hear rumors of a dividend increase. everyone should make their own decisions take the positive and negative articals with a grain of salt i get nervous when everyone is positive.

[Investing for Freedom]

@southerndividend I bought my first tranche of $IRM back in Oct. 2018 and added thereafter between $24- $30/share. I know exactly how you feel. LOL!

[kmanseal]

Full position in IRM @31.34 and NVDA @37.11 I'm a happy camper;)

[kedzie114]

Would like to see a bit of a dip before adding. Long IRM.