2024-03-29 10:06:16 ET
Summary
- Iron Mountain has experienced robust earnings growth, driven by plenty of catalysts.
- At the top of my list are its data center business, bolt-on acquisitions, and cross-selling opportunities.
- Consensus estimates project continued growth in the next 2-3 years, and I share the optimism.
- However, I consider it fully valued now and am concerned about its rising debt levels and profit pressure going forward.
IRM's Growth Catalysts
My last article gave Iron Mountain ( IRM ) a sell rating, and the goal of this article is to upgrade the rating to hold. The key reason for the upgrade is the next growth catalysts that have developed since then. IRM has enjoyed robust earnings growth in recent years as seen in the chart below. This chart shows that its FFO per share has grown from an average of around $2.5 to during 2015~2017 a peak of more than $5 in 2021~2022. And the growth is driven by fundamental catalysts. The top one on my mind is the data center hosting business, a segment that is experiencing explosive growth. Over the past year, the unit has surged by an impressive 27%. This momentum is fueled by the recent opening of four new colocation centers, bringing the total to 24. Looking ahead, I anticipate this division to continue growing and contribute more to the companywide revenue streams. A good portion of the growth is also driven by bolt-on acquisitions. Management has been very effective at finding good fits that can accelerate IRM's growth. However, it is my view that the balance sheet has become stretched now and the pace of these additions is likely to slow (more on this later)....
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Iron Mountain Has No Lack Of Catalysts But Is Fully Valued Now