Morgan Joseph Starts Digital Realty Trust (DLR) at Hold; Why Buy Retail When You Can Buy Wholesale?

Morgan Joseph initiates coverage on Digital Realty Trust (NYSE: DLR) with a Hold.

Morgan analyst says, "DLR currently trades at approximately 12x our 2012E EV/EBITDA, using our 2012E EBITDA estimate of $716mm, while the peer group of cloud infrastructure companies trades at about 9.2x. Apart from valuation, we believe the company’s fundamentals are robust, with solid demand for its data center space, solid pricing, and a significantly low weighted average cost of debt of slightly over 5%. We also believe investors will benefit from Digital Realty’s sales and EBITDA visibility and predictability, especially as its contracts can run up to 15 years, and the average remaining lease term in its portfolio is currently around 7 years. We anticipate potential upside to our estimates based on the company’s exploration of approximately $1bn of potential acquisitions. As well, we believe Digital Realty will generate organic growth. Despite the company’s solid prospects, we believe the stock price is unlikely to appreciate more than 20% over the next 12-months."

For more ratings news on Digital Realty Trust click here and for the rating history of Digital Realty Trust click here.

Shares of Digital Realty Trust closed at $62.67 yesterday.

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