(By Balachander) FBN Securities initiated coverage on shares of Equinix Inc. (NASDAQ: EQIX) with an "Outperform" rating and price target of $270.
The brokerage said the company is the leading colocation company in the world. Customers who use its (high-margin) Interconnection business (currently 15% rev. and expected to go higher) are "sticky" as once they are connected to other customers via "Platform Equinix", they are highly reluctant to move to other, cheaper competitive offerings.
Moreover, the expected conversion of the company to a REIT (by 2015) should result in much lower taxes starting in 2015 and in a large distribution ($700M-$1.1B, 20% of which is cash, the rest in stock) to shareholders, with most of this expected to take place before 2015.
As a key network hub for customers and service providers, demand for EQIX's data centers for colocation and interconnection is driven by Internet traffic, FBN wrote. EQIX also benefits as more SaaS providers (such as Salesforce.com (CRM), an EQIX customer) embrace colocation models.
Although Interconnection (whereby EQIX connects customers to other customers in a one-one (using a cross-connect) or a one-many fashion is only 15% of revenue, this business is higher-margin and actually helps the colocation business as customers gravitate to "Platform Equinix" to connect to other customers on the platform, FBN said. This, the brokerage said, obviously creates positive network effects and further increases the stickiness of the company's offering.
EQIX shares rose 1.04% to trade at $209.12 on Wednesday. In the past 52 weeks, the stock has been trading between $138.07 and $231.26.