Are Analysts Expecting Too Much from Iron Mountain’s Q4 Earnings? (NYSE:IRM)
As one of the standout performers in the real estate sector for 2023, Iron Mountain, trading under the ticker NYSE:IRM, is anticipated to unveil an uptick in its Q4 earnings. However, the looming question is whether the expectations pinned on the specialized REIT for this quarter are overly ambitious.
Iron Mountain is poised to reveal its Q4 earnings outcomes on Thursday, February 22nd, prior to the market’s opening session. The forecasted figures suggest a consensus Funds From Operations (FFO) estimate standing at $0.81, marking an 8.78% year-over-year increase. Concurrently, the predicted revenue estimate gravitates around $1.45 billion, signaling a 13.34% year-over-year ascent.
The backdrop to this forthcoming earnings announcement is the company’s underwhelming performance in the third quarter. Despite expanding its product and service offerings, which resulted in a 10% year-over-year revenue and adjusted EBITDA growth in Q4’22, both revenue and normalized FFO per share did not meet the expectations set by Wall Street.
Despite past discrepancies, Iron Mountain’s shares have seen a robust ~35% surge over the past year. This is in stark contrast to the XLRE, an index tracking S&P 500 real estate stocks, which has experienced a slight decline of about ~1.18%.
Iron Mountain stands out not just for its performance but also for its forward-looking financial prospects. According to BofA Securities, among the 80 S&P 500 stocks projected to offer a higher dividend yield over the next three years as opposed to cash, Iron Mountain boasts one of the most significant potential upsides to price objectives. Currently, the stock offers a 3-year annualized dividend yield of 4.1%. Notably, the company announced a dividend increase of 5% in Q3’23, underscoring its financial health and commitment to shareholder returns.
The strategic acquisition of Regency Technologies, a provider specializing in IT asset disposition services, for $200 million, is another feather in Iron Mountain’s cap. This acquisition is seen as a strategic move to bolster its Asset Lifecycle Management capabilities. Projections indicate that by 2026, the ALM business could report pro forma revenues surpassing $900 million. Following the closure of this deal in January, it is anticipated to have an immediate positive impact on the Adjusted Funds From Operations (AFFO). Stifel has even adjusted its price target on Iron Mountain, taking into account the potential benefits accruing from the Regency Technologies acquisition.
However, not all is rosy. The company faces challenges, evidenced by negative EPS revisions and subpar profitability metrics compared to other entities within the real estate sector. This has led to a ‘Sell’ rating from Seeking Alpha’s Quant Rating system. Despite this, a mixed sentiment prevails among market analysts, with SA authors suggesting a ‘Hold’ stance, while sell-side analysts lean more towards a ‘Buy’ rating.
Iron Mountain’s market performance has been subject to fluctuating narratives over the years, transitioning from being perceived as a declining paper-focused entity to being seen as a pioneering force in AI technology. Opinion remains divided on the company’s valuation, with some contributors considering it overvalued.
While Iron Mountain’s data center segment has experienced rapid growth, buoyed by the accelerating demand for AI, challenges remain in its paper storage market, which is on the decline. With revenue growth showing signs of deceleration and valuation concerns when juxtaposed with peers in the REIT sector, the company finds itself at a crucial juncture.
Currently trading at $68.22, the stock hovers near its 52-week high of $70.66, presenting a critical moment for investors as they weigh the potential versus the pitfalls in Iron Mountain’s operational and financial trajectory heading into the Q4 earnings announcement.
