Switch's Guidance 'Achievable,' Wells Fargo Says In Upgrade Ahead Of Q3 Print

Data center provider Switch Inc. SWCH is expected to announce third-quarter earnings Nov. 12 after weaker-than-expected second-quarter results.

The Analyst

Wells Fargo analyst Jennifer Fritzsche upgraded Switch from Market Perform to Outperform and lowered the price target from $13.50 to $11.50.

The Thesis

In addition to the upgrade, Wells Fargo lowered estimates for Switch in both 2018 and 2019.

The sell-side firm's new valuation has four drivers, Fritzsche said in a Thursday note. (See the analyst's track record here.)

They are:

• Limited downside to 2018 guidance.
• Expected growth acceleration in 2019 and beyond.
• Lower leverage compared to peers.
• A compelling valuation and forecast.

Switch's guidance remains "achievable," as revenue growth should increase, Fritzsche said.

“We estimate a $20-million contribution to 2019 revenues from current backlog and an additional $20 million coming through additional bookings. The reset of the Reno eBay Inc EBAY contract will add 60 basis points to 2019 year-over-year growth. With many larger deals having two-year ramps, we believe growth will accelerate in 2020 when its backlog hits full run-rate.”

Several opportunities exist to continue the expansion of the Las Vegas and Reno markets, as well as the opening of the Atlanta campus in 2019, Fritzsche said.

“In a rising interest rate market, SWCH has the advantage of being less levered and less reliant on the capital markets in the near future.”

Price Action

Switch shares were trading up 1.89 percent at $9.16 at the time of publication Thursday. 

Related Links:

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Photo courtesy of Switch.