Digital Realty’s Fundamentals Look Strong, but Margins Are Under Pressure Near Term

Digital Realty’s fourth-quarter revenue and adjusted EBITDA slightly beat FactSet consensus estimates, but multiple moving parts that cloud both metrics result in them meaning little. More importantly, we see very positive trends in Digital’s business and the transition it has made from a wholesale data center provider to one that can meet colocation and interconnection needs. We think this bodes very well for the firm’s long-term prospects, but in the near term, margins will be under significant pressure. We’re maintaining our $133 fair value estimate and think the stock is attractive.