SunTrust Starts Datacenters With A 'Positive View', Says Buy CyrusOne, DuPont Fabros And Equinix

Inder Singh of SunTrust Robinson Humphrey initiated coverage of the Datacenter Infrastructure space with a 'Positive view.'
Singh noted the sector benefits from 'favorable' cloud traffic growth trends.
The analyst recommended investors buy CyrusOne Inc CONE, DuPont Fabros Technology, Inc. DFT, and Equinix Inc EQIX.

Datacenter infrastructure companies are a prime beneficiary of "favorable" cloud traffic growth trends, according to Inder Singh of SunTrust Robinson Humphrey.

In a new sector-wide report, Singh initiated coverage of the datacenter infrastructure space with a "positive view." The analyst highlighted the "proliferation" of bandwidth intensive applications (including video streaming) which has increased the demand for distributed compute architectures to "bring users closer to content."

"Given that two thirds of internet traffic is data center related, the importance of data centers both from a colocation and cloud perspective is significant," Singh wrote. "Data center traffic is the biggest component of internet traffic, almost twice as much as the traffic that transverses IP WAN networks."

Singh said data center traffic is expected to grow by a compounded annual growth rate of 23 percent through 2019, reaching as much as 10.4 Zettabytes per year.

Looking forward to 2016, Singh suggested that M&A activity in the space will continue for two reasons: 1) wholesale and retail colocation companies are looking to expand their service offerings to become a "one-stop shop" that can attract clients of all types and sizes, and 2) scale and size is important to attract enterprises that operate across many geographical regions.

CyrusOne Initiated At Buy

Singh initiated coverage of CyrusOne with a Buy rating and $43 price target due to: 1) a "successful footprint expansion" within the highly competitive markets, 2) the company's "differentiated" consultative sales approach, 3) the acquisition of Cervalis that increases its customer and geographical profile, and 4) ownership risk is "behind us" after Cincinnati Bell liquidated most of its position.

DuPont Fabros Initiated At Buy

Singh initiated coverage of DuPont Fabros with a Buy rating and $40 price target due to: 1) the company having the "strongest" exposure to the cloud – the fastest growing IT vertical, 2) "favorable" customer concentration, and 3) industry-leading margins, and 4) an "attractive" valuation.

Equinix Initiated At Buy

Singh initiated coverage of Equinix with a Buy rating and $345 price target due to: 1) the company's "leading" global footprint, 2) a differentiated interconnection capability and a cloud ecosystem, 3) enterprise IT outsourcing creates the opportunity for top-line growth, and 4) an improving operating model that could drive margin upside.