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Global Expansion, Buyouts to Fuel Equinix (EQIX) Q4 Earnings

Zacks

Equinix, Inc. EQIX is set to report fourth-quarter 2017 earnings results on Feb 14. This company has witnessed a remarkable streak of beating earnings estimates, especially when looking at the previous four reports. In fact, in each of the trailing four quarters, Equinix surpassed the Zacks Consensus Estimate, with an average positive earnings surprise of 6.8%.

Let’s see how things are shaping up prior to this announcement.

What to Expect?

The Zacks Consensus Estimate for the quarter is pegged at $4.80, reflecting a year-over-year increase of 17.7%. The Zacks Consensus Estimate for sales of $1.19 billion indicates around 26.5% growth from the prior-year quarter.

Factors at Play

Equinix is a global provider of network-neutral data centers, and internet-exchange services for enterprises, content companies, systems integrators, and network service providers. The company operates across various geographical regions and its increasing popularity among major tech industry players looking for data management will likely drive revenues in the fourth quarter.

Acquisitions have been a major growth driver for Equinix and helped it expand its data-center capacity in many of the company’s key markets since 2003. We anticipate the company’s buyouts of data-center assets from Verizon Communications Inc. VZ, Telecity Group, Bit-isle and Nimbo to boost the top line in the quarter under review.

Expansion in important markets and consolidation of facilities in existing ones have been important parts of Equinix's core strategy. We believe the company’s focus on offering upgraded technology to attract clients will bolster its revenues and profitability in the to-be-reported quarter.

However, we remain slightly cautious about the huge capital outlays, which might dent Equinix’s fourth-quarter profitability. It should be noted that the company had cash, cash equivalents and short-term investments of $1.629 billion, while the total debt principal outstanding was $10.12 billion as on Sep 30, 2017. Growing debt burden will affect the company’s profitability in the quarter as interest expense would flare up.

Moreover, heightening competition from established internet data-center operators, such as AT&T T, Level 3 Communications, COLT and Verizon, will affect product pricing, thereby thwarting the company’s margins.

Equinix, Inc. Price and EPS Surprise

What the Zacks Model Unveils?

Our proven model does not conclusively show that Equinix is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Equinix carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company has an Earnings ESP of 0.00%, as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $4.80. The combination of Equinix's Zacks Rank #3 and Earnings ESP of 0.00% makes surprise prediction difficult.

A Stock With Favorable Combination

Here is a company you may want to consider as our model shows that this stock has the right combination of elements to post an earnings beat:

Applied Materials, Inc. AMAT has an Earnings ESP of +0.57% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

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