Equinix positioned well in to weather an economic downturn

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Equinix (NASDAQ:EQIX) was upgraded to Outperform from Market Perform on Tuesday, with its price target raised to $811 from $730 per share by Cowen, who also added the stock to its “Best Ideas for 2023” list.

Equinix shares have rallied almost 5% so far on Tuesday.

Cowen analysts said Equinix is a best-in-class DC operator with a defensible interconnection moat and a healthy B.S., positioning it well vs. peers to weather an economic storm.

“A key part of our upgrade is our view that 2023 EBITDA and AFFO/share will not be impacted by higher power prices given Equinix’s hedging strategy and contractual pass-through abilities. Specifically, as of YE22, Equinix will be 98% hedged against higher power costs in Europe in 2023. In addition, it has invoked the “power protection” clause within its customer contracts which provides it the ability to pass-through higher power costs to the “vast majority” of its customer base,” explained the analysts.

They went on to explain that the firm believes Equinix is a “best-in-class data center operator with a unique interconnection value proposition which it has built over decades that serves as a defensible moat around its business.” They also see it as well-positioned to benefit from continued demand, given enterprise digital transformation initiatives.

“Equinix is well capitalized to fund NT expansion with a healthy balance sheet and access to incremental debt and equity capital. Importantly, we believe Equinix will benefit from growth tailwinds in the form of previously disclosed price increases over the coming years as contracts renew, which we believe is being underappreciated by investors. Lastly, while rising interest rates have weighed on Equinix’s stock in 2022, we believe we are closer to the end of the current rate hike cycle than the beginning and believe the impact of higher rates are priced into the stock at current levels,” the analysts concluded.