Equinix: Lack of News Is the Only Real Disappointment From Investor Day

Equinix’s EQIX investor day focused mostly on the opportunity the firm believes it has in front of it as the trends toward data, digitization, and connectivity continue to grow stronger, with artificial intelligence further strengthening those needs. We believe Equinix is a critical cog in enabling these trends. It has few if any true peers and is well placed to meet these needs. With its network-dense footprint, we think Equinix’s narrow moat, the network effect behind it, and the continuation of customers gravitating to Equinix are solidly intact. However, this has generally been the investment thesis behind Equinix for many years, so the investor day served just as a reminder of where Equinix sits and its capabilities.

The stock sold off when the firm provided very little detail to its largely unchanged outlook for long-term sales and adjusted funds from operations growth, and it did not reiterate its previous target to reach a 50% EBITDA margin by 2025. None of the financial targets management disclosed changed our projections. We believe Equinix is a premier company that’s worth a buy on a material pullback, but we currently see the stock as overvalued relative to our unchanged $620 fair value estimate.

Management mostly confirmed and extended the long-term growth rates that it expects. Annually through 2027, the firm sees 8%-10% organic revenue growth, 7%-10% AFFO per share growth, and more than 10% dividend growth. It also foresees capital spending of up to $3 billion annually and may increase leverage a bit to fund growth. The firm still sees a path to a 50% EBITDA margin but no longer puts a 2025 time frame on it. With our existing projection of a 48% margin in 2025 and revenue and AFFO growth rates in line with the company’s targets, this doesn’t surprise us. Equinix’s strategy to continue spending for growth should limit the opportunities for margin expansion, in our view.