Global data center service provider Equinix Inc. (EQIX) recently announced an underwriting agreement to sell $750.0 million aggregate principal amount of 8.125% senior unsecured notes due in 2018.
The company is expected to derive net proceeds of approximately $736,275,000, excluding underwriting discounts and estimated offering expenses. The company will be using the net proceeds from this debt issue for general purposes, such as capital expenditure for expansion and to repay the existing debts raised in connection with the acquisition of the Switch & Data facilities Company Inc.
The interest will be paid semi-annually at the rate of 8.125% per year. We believe that the company can productively use this debt, as it is constantly acquiring new companies that could enhance its revenue potential and expand its geographic reach. It is also expanding its current facilities, and at the same time exercising fiscal discipline.
This apart, in October 2009, Equinix unveiled its plan to set up a 4,500 square meter or 48,400 square foot data center in Geneva, Switzerland. This second data center in Geneva falls within the company’s $1.4 billion expansion plan to be executed within the 2007 – 2010 timeframe. In accordance with this plan, the company expects to expand operations in 15 of the 18 markets in which it operates. So we believe that the debt raising exercise goes well with this plan.
The company reported decent fourth quarter 2009 EPS of $0.44, exceeding the Zack Consensus Estimate by 10 cents, and revenue increasing 27.0% compared to the year-ago quarter. For the upcoming quarter, the Zacks Consensus EPS estimate for Equinix is $0.45 a share, on par with the Most Accurate Estimate, limiting the upside potential.
Analysts are bullish on the stock, as eleven analysts have revised their estimates upward for the upcoming quarter in the last one month, with only four downward revisions.
We are positive about the company’s recurring revenue model and its expansion into the European market, which has very favorable characteristics. However, increased competition, industry consolidation and a long sales cycle makes us cautious.
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