Why Equinix Shares Popped
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of data center management and cloud play Equinix (NAS: EQIX) are shooting to the stars today, up as much as 14% earlier in the trading session, following better-than-expected first-quarter results.
So what: For the quarter, revenue grew 25% to $452.2 million while net income jumped 37% to $0.71. Both figures crushed Wall Street's expectations for $445.1 million in sales and a profit of $0.49. Equinix also issued revenue guidance for the second quarter of $466 million to $468 million, which is slightly ahead of the $463.9 million consensus estimate. Tack on a price target upgrade from Stifel Nicolaus to $200 from $165 and you have the makings of a great day for bulls.
Now what: Despite the earnings beat, there are still a lot of questions that need to be answered about Equinix's valuation, and that's the reason I maintain a CAPScall of underperform on the stock. Spending continues to be frivolous, with general, selling, and administrative expenses soaring 30% in the first quarter. In addition, the company's full-year revenue forecast of $1.89 billion was only at the high end of current expectations. I'd expect more for a company valued at 47 times forward earnings and with more than $3 billion in debt.
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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.