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Should You Consider Adding Iron Mountain Stock to Your Portfolio?
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Iron Mountain (IRM - Free Report) boasts a stable and resilient core storage and record management business. A recurring revenue business model and a well-diversified tenant base assure steady cash flows. Its healthy balance sheet, accretive buyouts and expansion efforts into the data center business bode well for growth. However, competition from industry peers is likely to lead to aggressive pricing pressure and lower margins.
Shares of this Zacks Rank #2 (Buy) real estate investment trust (REIT) have rallied 23%, outperforming the industry's 7.9% growth over the past three months.
Analysts seem bullish on this REIT, with the Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share being raised marginally northward over the past three months to $4.49.
Image Source: Zacks Investment Research
What’s Aiding IRM?
Iron Mountain derives the majority of its revenues from fixed periodic (usually earned monthly) storage rental fees charged to customers based on the volume of their records stored, ensuring a steady stream of recurring revenues. Also, a well-diversified tenant base assures stable cash flows. IRM’s retention rate for its records management business was 92.8% in the second quarter. In the same period, its organic storage rental revenues increased 10.1% from the prior year quarter. We estimate a year-over-year increase of 9.6% in storage rental revenues in 2024.
Iron Mountain is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. In the second quarter, IRM attained data center revenue growth of 29.4%. Due to the company’s strong pipeline, management expects to lease 130 megawatts for the year.
Iron Mountain has not only gained new customers from acquisitions but also has been able to expand operations in international markets, specifically emerging ones. By scaling up its emerging market platform, the company has the scope to accelerate the EBITDA growth rate. We project a year-over-year increase of 12.9% and 11.5% in adjusted EBITDA in 2024 and 2025, respectively.
Iron Mountain had a total liquidity of approximately $2.3 billion as of June 30, 2024, with a net total lease-adjusted leverage of 5.0X. It had no significant debt maturities until 2027 and 80% of its net debt was fixed. With this, it has ample financial flexibility to meet its near-term debt obligations and other capital commitments while pursuing growth opportunities.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders and Iron Mountain remains committed to that. In August 2024, concurrent with its second-quarter 2024 earnings release, it announced a 10% hike in its cash dividend to 71.5 cents per share from 65 cents paid out earlier. Given IRM’shealthy operating platform, our year-over-year adjusted AFFO growth projection of 9.8% for 2024, a lower-than-industry payout ratio and a solid financial position, the increased dividend is likely to be sustainable in the forthcoming period.
What’s Hurting IRM?
As archiving of original hard-copy documents loses its relevance, paper needs are shrinking at the enterprise level. This, along with shifts in data storage through non-paper-based technologies, is affecting physical storage volume and demand for handling of records. This is reducing service activity levels and records management volume. In addition, the digitization of records is likely to shift the company’s revenue mix from more predictable storage revenues to volatile service revenues.
The records and information management services industry is highly fragmented with numerous competitors in North America and around the world. Although Iron Mountain offers compelling products and has a strong market position, it faces significant competition. Going forward, this is likely to result in aggressive pricing and will keep margins under pressure.
The Zacks Consensus Estimate for SL Green Realty’s current-year FFO per share has been raised marginally over the past week to $7.61.
The Zacks Consensus Estimate for Crown Castle’s current-year FFO per share has moved northward marginally over the past week to $6.98.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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Should You Consider Adding Iron Mountain Stock to Your Portfolio?
Iron Mountain (IRM - Free Report) boasts a stable and resilient core storage and record management business. A recurring revenue business model and a well-diversified tenant base assure steady cash flows. Its healthy balance sheet, accretive buyouts and expansion efforts into the data center business bode well for growth. However, competition from industry peers is likely to lead to aggressive pricing pressure and lower margins.
Shares of this Zacks Rank #2 (Buy) real estate investment trust (REIT) have rallied 23%, outperforming the industry's 7.9% growth over the past three months.
Analysts seem bullish on this REIT, with the Zacks Consensus Estimate for its 2024 funds from operations (FFO) per share being raised marginally northward over the past three months to $4.49.
Image Source: Zacks Investment Research
What’s Aiding IRM?
Iron Mountain derives the majority of its revenues from fixed periodic (usually earned monthly) storage rental fees charged to customers based on the volume of their records stored, ensuring a steady stream of recurring revenues. Also, a well-diversified tenant base assures stable cash flows. IRM’s retention rate for its records management business was 92.8% in the second quarter. In the same period, its organic storage rental revenues increased 10.1% from the prior year quarter. We estimate a year-over-year increase of 9.6% in storage rental revenues in 2024.
Iron Mountain is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. In the second quarter, IRM attained data center revenue growth of 29.4%. Due to the company’s strong pipeline, management expects to lease 130 megawatts for the year.
Iron Mountain has not only gained new customers from acquisitions but also has been able to expand operations in international markets, specifically emerging ones. By scaling up its emerging market platform, the company has the scope to accelerate the EBITDA growth rate. We project a year-over-year increase of 12.9% and 11.5% in adjusted EBITDA in 2024 and 2025, respectively.
Iron Mountain had a total liquidity of approximately $2.3 billion as of June 30, 2024, with a net total lease-adjusted leverage of 5.0X. It had no significant debt maturities until 2027 and 80% of its net debt was fixed. With this, it has ample financial flexibility to meet its near-term debt obligations and other capital commitments while pursuing growth opportunities.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders and Iron Mountain remains committed to that. In August 2024, concurrent with its second-quarter 2024 earnings release, it announced a 10% hike in its cash dividend to 71.5 cents per share from 65 cents paid out earlier. Given IRM’shealthy operating platform, our year-over-year adjusted AFFO growth projection of 9.8% for 2024, a lower-than-industry payout ratio and a solid financial position, the increased dividend is likely to be sustainable in the forthcoming period.
What’s Hurting IRM?
As archiving of original hard-copy documents loses its relevance, paper needs are shrinking at the enterprise level. This, along with shifts in data storage through non-paper-based technologies, is affecting physical storage volume and demand for handling of records. This is reducing service activity levels and records management volume. In addition, the digitization of records is likely to shift the company’s revenue mix from more predictable storage revenues to volatile service revenues.
The records and information management services industry is highly fragmented with numerous competitors in North America and around the world. Although Iron Mountain offers compelling products and has a strong market position, it faces significant competition. Going forward, this is likely to result in aggressive pricing and will keep margins under pressure.
Other Stocks to Consider
Some other top-ranked stocks from the broader REIT sector are SL Green Realty (SLG - Free Report) and Crown Castle Inc. (CCI - Free Report) . SLG sports a Zacks Rank #1 (Strong Buy) at present and CCI carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for SL Green Realty’s current-year FFO per share has been raised marginally over the past week to $7.61.
The Zacks Consensus Estimate for Crown Castle’s current-year FFO per share has moved northward marginally over the past week to $6.98.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.