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Why Should You Buy Digital Realty (DLR) Stock Right Now?


The rate hike and a cautious approach might have deterred you from making investments in the REIT industry. But make sure not to miss the chances of reaping big gains from this special hybrid asset class that also benefits from the favorable dynamics of the individual asset categories.

In fact, one such REIT stock which has been displaying strength is Digital Realty Trust, Inc. DLR. This Zacks Rank #2 (Buy) stock has risen 7.5% in the past six months compared with 4.2% growth recorded by the Zacks categorized REIT and Equity Trust – Other industry.

This data center REIT has enough room for growth. This is because with growth in cloud computing, Internet of Things and big data, and an increasing number of companies opting for third-party IT infrastructure, data center REITs are experiencing a boom market. In fact, demand has been outpacing supply in top tier data center markets and despite enjoying high occupancy, these markets are absorbing new construction at a faster pace.

Also, in Jun 2017, the company announced that it will acquire DuPont Fabros Technology, Inc. DFT in an all-stock transaction for an enterprise value of about $7.6 billion. This move would enhance Digital Realty’s portfolio in top U.S. data center metro areas across Northern Virginia, Chicago and Silicon Valley. Further, the transaction is anticipated to be immediately accretive to financial metrics. (Read more: Digital Realty to Acquire DuPont Fabros in $7.6 Billion Deal)

In fact, Digital Realty continues to depict robust fundamentals and improving prospects, letting us further explore why it is a solid choice now.

Backed by growth in revenues, the company delivered a surprise of 2.04% in terms of funds from operations (FFO) per share in first-quarter 2017. Also, over the last three–five years, Digital Realty witnessed 5.5% growth in FFO per share against 2.9% of that of the industry.

In addition, the company’s projected sales growth of nearly 15.0% for 2017 is ahead of the industry’s expected growth rate of 2.9%, signaling brighter days ahead. Its FFO per share is estimated to grow at a rate of 5.3% for 2017, which is ahead of the industry average of 2.6%.

Apart from this, Digital Realty enjoyed a historical cash flow growth (3–5 years) of 18.9%, which comfortably exceeded the industry’s growth of 18.0%. Also, the company’s current cash flow growth of 31.1% is way ahead of the industry’s rate of 15.8%.

Moreover, Digital Realty’s Return on Equity (ROE) is 22.07% compared with the industry average of 12.8%. This indicates that the company reinvests more efficiently compared to the industry.

Other Key Picks

Other top-ranked stocks in the real estate space include Liberty Property Trust LPT and PS Business Parks, Inc. PSB. Both the stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Liberty Property Trust and PS Business Parks have long-term growth rates of 6% and 5%, respectively.

Note: All EPS numbers presented in this write up represent funds from operations (FFO) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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