Company Profile (excerpt from Reuters): Equinix, Inc. (Equinix), incorporated on June 22, 1998, operates as a real estate investment trust (REIT). The Company connects various companies directly to their customers and partners inside interconnected data centers. The Company operates through three segments: Americas, EMEA and Asia-Pacific. The Company’s platform Equinix, combines a global footprint of International Business Exchange (IBX) data centers, a range of interconnection solutions, ecosystems and support. Its customers include carriers, mobile and other bandwidth providers, cloud and information technology (IT) services providers, content providers, financial companies and enterprises. It provides each customer access to a choice of business partners and solutions based on their colocation, interconnection and managed IT service needs. Its colocation offerings include operations space, storage space, cabinets and power for customers’ colocation needs inside Equinix’s IBX data centers. Its interconnection offerings include Equinix Cloud Exchange, which enables simultaneous, direct and secure connections to multiple clouds from a single port; Equinix Performance Hub, which takes enterprise IT inside any one of its global data centers, and Equinix Data Hub, which enables secure, compliant access to business-critical data and analytics wherever users are located around the globe.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$37,512,444,147||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.00||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Fail|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||138.03%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||111.84||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||5.05||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.00||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||15,449.18||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||15.00%|
|MG Value based on 3% Growth||$58.37|
|MG Value based on 0% Growth||$34.22|
|Market Implied Growth Rate||51.67%|
|% of Intrinsic Value||290.49%|
Equinix Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.62 in 2015 to an estimated $4.03 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 51.67% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Equinix Inc revealed the company was trading above its Graham Number of $103.19. The company pays a dividend of $9.12 per share, for a yield of 2% Its PEmg (price over earnings per share – ModernGraham) was 111.84, which was above the industry average of 61.92. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-142.24.
Equinix Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$142.24|
|Number of Consecutive Years of Dividend Growth||4|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2018|
|Total Current Assets||$1,515,682,000|
|Total Current Liabilities||$1,515,071,000|
|Shares Outstanding (Diluted Average)||80,920,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$5.27|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$4.03|
Other ModernGraham posts about the company
|Equinix Inc Valuation – June 2018 $EQIX|
|Equinix Inc Valuation – July 2017 $EQIX|
|5 of the Worst Stocks to Invest In – December 2016|
|Equinix Inc Valuation – August 2016 $EQIX|
|Equinix Inc. Analysis – Initial Coverage $EQIX|
Other ModernGraham posts about related companies
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.