Neutral on Iron Mountain – Analyst Blog

We are positive about Iron Mountain Incorporated (IRM) due to its continuous momentum through 2008 and 2009, driven by strength in the storage segment, which has grown at a five-year compound annual growth rate (CAGR) of 22%.

 

Shares of Iron Mountain are currently trading at a P/E multiple of 22.7x our 2010 earnings estimate of $1.13, a premium to the industry average and the S&P 500. The company has posted upbeat fourth quarter results and raised its 2010 guidance. Iron Mountain has adopted an aggressive acquisition strategy to stimulate growth, especially in the storage and digital revenue segments, and has built a strong platform for future growth.

 

Boston, Massachusetts based Iron Mountain is a leading provider of information protection and storage services in North America, Latin America, Europe and the Pacific Rim. The continuing strength in the information protection and storage business has driven steady profits for Iron Mountain.

 

With focused execution, substantial recurring revenue, steady margins, earnings momentum, cost savings, international expansion and proven value proposition, we remain optimistic on the company’s long-term prospects.

 

However, we would like to caution investors about the high level of debt, the rich valuation and the dependence on large acquisitions for growth. Softness in the Services business, strong competition and foreign currency fluctuations are other negatives.

 

 

Iron Mountain reported fourth quarter results on February 25. Quarterly adjusted earnings (excluding the impact from foreign currency rate changes and other discrete tax items) of 27 cents per share beat the Zacks Consensus Estimate of 24 cents. EPS of 27 cents was up 23% from 22 cents reported in the year-ago quarter. The increase in earnings was driven by a higher operating income and lower effective tax rate.

 

The company also raised its 2010 outlook to reflect improved operational performance and its recent acquisition of Mimosa Systems. The company expects improved revenue growth as well as continued progress in strengthening returns in the North American Physical segment and improved profitability from the International Physical segment.

 

Management expects EPS to be in the $1.07 to $1.20 range in 2010 (9% to 22% growth from 2009 levels). These gains will be partially offset by the dilutive impact of the Mimosa acquisition due to integration costs to be recorded in 2010. The acquisition is expected to result in a modest dilution of earnings in its first year of closing. However, accretive synergies and revenue growth are expected to drive profits beyond 2010.

 

The current Zacks Consensus Estimate for the first quarter of 2010 is 22 cents per share. Two of the 9 analysts covering the stock have raised their first quarter estimates in the last 30 days, while 2 have moved in the opposite direction.

 

Analysts expect results for 2010 to be back-end loaded, as 8 of the 9 analysts covering the stock have raised their 2010 EPS estimates in the last 30 days, while 1 has raised the estimate in the last 7 days.

 

As long as Iron Mountain can continue to perform at a high level, we believe the shares can maintain their current valuation, perhaps even increasing slightly. We therefore maintain our Neutral rating on the stock with a price target of $27.00.