Yahoo Finance Iron Mountain Stock Rises 30% in Three Months: Will the Trend Last?
Shares of Iron Mountain Incorporated IRM have rallied 30.1% in the past three months, well ahead of the industry’s growth of 18.6%.
This Boston, MA-based real estate investment trust (REIT) continues to benefit from its stable and resilient core storage and records management businesses, enabling it to ride the growth curve. It is likely to continue gaining from the healthy revenue management and volume trends in the quarters ahead. The company’s accretive buyouts and data center business expansion efforts are likely to have paid off well.
Analysts also seem bullish on the IRM stock, with the Zacks Consensus Estimate for 2024 adjusted funds from operations (AFFO) per share being revised five cents upward to $4.49 over the past two months.
Image Source: Zacks Investment Research
Factors Behind the Surge in IRM Stock Price: Will This Last?
Core Business Strength: Iron Mountain enjoys a steady stream of recurring revenues from its core storage and records management businesses. The company derives a majority of its revenues from fixed periodic (usually earned on a monthly basis) storage rental fees charged to customers based on the volume of their records stored. Its retention rate for its records management business was 92.8% in the second quarter.
In the second quarter of 2024, Iron Mountain’s organic storage rental revenues increased 10.1% from the prior-year quarter. The benefit was driven by revenue management in its Global RIM Business segment, as well as growth in its Global Data Center Business segment, on the back of lease commencements. We estimate a year-over-year increase of 9.6% in storage rental revenues in 2024. For 2025 and 2026, the metric is expected to witness growth of 8.6% and 9.6%, respectively.
The company has a diversified tenant and revenue base and serves more than 240,000 clients across different industries and geographical locations. Most importantly, no single customer accounted for more than 1% of its revenues in 2023, reflecting a well-diversified revenue generation base. This is likely to support the company’s cash flows in the quarter ahead.
Iron Mountain is supplementing its storage segment’s performance with expansion in its faster-growing businesses, most notable being the data center segment. It is making organic growth efforts, along with expansion projects and developments. Such moves will enable the company to capitalize on strong demand for connectivity, interconnection and colocation space and drive leasing activity.
In the second quarter of 2024, the company attained data center revenue growth of 29.4%. It leased 66 megawatts of data center capacity in the quarter, totaling 97 megawatts in the first six months of 2024. Due to the company’s strong pipeline, management is confident to exceed its original projection of 100 megawatts and now expects to lease 130 megawatts for the year. It leased 124 megawatts of data center capacity in 2023.
Balance Sheet Strength: Iron Mountain’s healthy balance sheet position, along with ample financial flexibility, has enabled it to capitalize on long-term growth opportunities. Iron Mountain had a total liquidity of approximately $2.3 billion as of June 30, 2024 and a weighted average maturity of five years. It had no significant debt maturities until 2027, and 80% of its rate debt was fixed. Its net total lease-adjusted leverage was 5.0X in the second quarter of 2024, the lowest level since the company’s REIT conversion in 2014.
Its current cash flow growth is projected at 4.46% compared with the negative 4.03% expected for the industry. Also, a significant trailing 12-month return on equity compared with the industry’s average of 3.21% reflects its superiority in terms of utilizing shareholders’ funds over its peers.
Dividend Payouts: 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 its healthy operating platform, our year-over-year adjusted AFFO growth projections of 9.8% for 2024, a lower-than-industry payout ratio and solid financial position, the increased dividend is likely to be sustainable in the forthcoming period. Check Iron Mountain’s dividend history here.
Key Concerns for Iron Mountain
Competition from other industry players is likely to lead to aggressive pricing pressure and hurt Iron Mountain’s prospects. Still high interest rates and adverse foreign currency movement remain a concern.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Lamar Advertising LAMR and Cousins Properties CUZ, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Lamar Advertising’s 2024 FFO per share of $8.09 indicates an 8.3% increase year over year.
The Zacks Consensus Estimate for Cousins Properties’ 2024 FFO per share is pegged at $2.67, which suggests 1.9% year-over-year growth.
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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Iron Mountain Incorporated (IRM) : Free Stock Analysis Report
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