Data Center Operator Switch's Business Model Snags Vote Of Confidence From Stifel

Despite lackluster performance by shares of data center provider Switch Inc SWCH, a Stifel analyst sees value and upside in the stock.

The Analyst

Analyst Erik Rasmussen initiated coverage of Switch with a Buy rating and $15 price target.

The Thesis

The weakness in Switch's stock was due to less-than-stellar results and dilution that resulted from the redemption of Class B shares, Rasmussen said in the initiation note. 

Switch generates above-average returns on invested capital relative to peers thanks to its focus on providing midsized data centers that require a high level of connectivity; its operation in low-cost markets; and its above-average power densities.

The company has differentiated its services from peers by following high resiliency standards, Rasmussen said.

"High resiliency can be particularly important to enterprise customers that are running mission-critical workloads and may not have redundancy built into their IT infrastructure," the analyst said. 

The company's choice of locations with low power costs, low cost of living, availability of green energy, low sales tax, low risk of natural disaster and nearness to major markets to achieve low latency is also commendable, Rasmussen said. 

The $12 trading level offers an attractive entry point for long-term investors, according to Stifel. 

The Price Action

Switch shares have lost about 29 percent year-to-date.

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Photo courtesy of Switch.