Equinix (EQIX) and Welltower (WELL): Are They Wise REIT Investments Before Earnings?

Recent reports highlight a substantial increase in household debt, suggesting heightened reliance on credit amidst inflation, which typically favors REITs. Given the promising outlook for the sector, in this piece, I have looked into Equinix, Inc. (EQIX) and Welltower Inc. (WELL) to see whether these stocks are worth investors’ attention ahead of their earnings releases. Let's understand this in more detail.

A report from the Federal Reserve Bank of New York revealed a $212 billion increase in total household debt, reaching $17.5 trillion in the fourth quarter of 2023. Within this, credit card balances ballooned by $212 billion to $1.13 trillion, while mortgage balances ascended by $112 billion to $12.25 trillion.

Michele Raneri, Vice President and Head of U.S. Research and Consulting at TransUnion, said, “Inflationary pressures and higher-than-expected living costs have led to many consumers turning to bank cards to help make ends meet in recent quarters, and Millennials are no exception.”

Real Estate Investment Trusts (REITs) are known to excel during periods of high inflation, capitalizing on the appreciating values of their properties. Additionally, they demonstrate financial strength through historically low leverage and meticulously structured fixed-rate debt, leading to minimal current interest expenses.

Moreover, REITs distribute at least 90% of taxable income to shareholders as dividends, providing a dependable income stream even in turbulent economic conditions. Investor enthusiasm for REITs is exemplified by the iShares Core U.S. REIT ETF's (USRT) 12.3% returns over the last three months.

According to a report by Technavio, the global REIT market is projected to grow at a 2.8% CAGR from 2022 to 2027. The market size is expected to increase by $333.01 billion during the forecast period. Despite this positive industry outlook, let's delve into the fundamentals of the two REITs to understand why it might be wise to await a better entry point in the stocks.

Equinix, Inc. (EQIX)

EQIX is a leading digital infrastructure firm that empowers digital pioneers to integrate foundational infrastructure. Leveraging EQIX's reliable platform, organizations access essential locations, partners, and opportunities to scale operations swiftly, launch digital services, enhance experiences, and amplify value.

On January 17, 2024, EQIX unveiled the Equinix Fabric Cloud Router, revolutionizing enterprise connectivity. The innovative virtual routing service would empower enterprises to seamlessly interconnect applications and data across diverse cloud environments and on-premise infrastructures.

The advanced virtual routing service is poised to drive revenue growth by attracting more enterprise clients seeking streamlined multi-cloud connectivity solutions, thus reinforcing EQIX's market dominance and ensuring sustained success.

EQIX has consecutively increased its dividends for the past eight years. It pays a $17.04 per share dividend annually, which translates to a 2% yield on the current price level. Its dividend has grown at a 10.8% CAGR over the past three years, and its four-year average dividend yield is 1.63%.

In terms of trailing-12-month non-GAAP P/E, EQIX is trading at 91.40x, 211.1% higher than the industry average of 29.38x. Its trailing-12-month EV/EBITDA of 34.25x is 103.6x higher than the 16.82x industry average. Moreover, the stock’s trailing-12-month Price/Sales of 10.58x is 135.4% higher than the industry average of 4.49x.

For the fiscal 2023 third quarter that ended September 30, 2023, EQIX’s revenue increased 12% year-over-year to $2.06 billion. Its gross profit grew 9.5% from the year-ago value to $992.04 million.

However, the company’s total operating expenses rose 6.8% from the prior year’s period to $611.69 million. Also, as of September 30, 2023, EQIX’s total current liabilities amounted to $1.89 billion, compared to $1.84 billion as of December 31, 2022.

EQIX is set to announce its fiscal 2023 fourth-quarter earnings on February 14. For the quarter that ended December 2023, analysts expect the company’s revenue to increase 13% year-over-year to $2.11 billion. Similarly, EQIX’s FFO is expected to rise 20.8% from the prior year’s period to $5.30.

Shares of EQIX have gained 4.9% over the past month and 10.4% over the past six months to close the last trading session at $849.98.

EQIX’s outlook is reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

EQIX boasts a B grade for Stability but shows a C grade for Growth and a D grade for Value. It is ranked #2 out of four stocks within the B-rated REITs - Data Centers industry.

In addition to the POWR Ratings I’ve highlighted, you can see EQIX’s Momentum, Sentiment, and Quality ratings here.

Welltower Inc. (WELL)

WELL invests in collaboration with top senior housing operators, post-acute providers, and health systems to finance essential real estate infrastructure. This enables the expansion of innovative care delivery models, enhancing wellness and refining overall healthcare experiences for individuals.

In August of last year, WELL partnered with Optima Living to manage six upscale senior communities in Red Deer, Medicine Hat, and Victoria. These facilities offer premium living and long-term care services.

By leveraging Optima Living's expertise in maintaining over 90% occupancy rates during the pandemic, WELL is expected to enhance its foothold in Western Canada's upscale senior living market, ensuring sustained growth and elevated service standards.

WELL pays a $2.44 per share dividend annually, which translates to a 2.79% yield on the current price level. Its four-year average dividend yield is 3.73%.

In terms of trailing-12-month non-GAAP P/E, WELL is trading at 125.61x, 327.5% higher than the industry average of 29.38x. Its trailing-12-month EV/EBITDA of 26.25x is 56.1% higher than the 16.82x industry average. Furthermore, the stock’s trailing-12-month Price/Sales of 6.91x is 53.9% higher than the industry average of 4.49x.

For the fiscal 2023 third quarter that ended September 30, 2023, WELL’s total revenues increased 12.8% year-over-year to $1.66 billion. However, its total expenses rose 8.3% from the year-ago value to $1.59 billion. As of September 30, 2023, WELL’s total liabilities stood at $17.84 billion, up from $16.96 billion as of September 30, 2022.

WELL is set to unveil its fiscal 2023 fourth-quarter earnings on February 13. The consensus revenue estimate of $1.74 billion for the quarter that ended December 2023 indicates a 14.4% year-over-year growth. Likewise, the consensus FFO estimate of $0.94 for the same period reflects a 12.9% year-over-year increase.

The stock has plunged 4.6% over the past month, while it has gained 15.4% over the past year, closing the last trading session at $87.55.

WELL’s fundamentals are apparent in its POWR Ratings. The stock has an overall rating of C, which equates to Neutral in our proprietary rating system.

WELL boasts an A grade for Sentiment but holds a C grade for Momentum. Furthermore, the stock has a D grade for Value. It is ranked #11 out of 15 stocks within the REITs - Healthcare industry. Click here to access additional WELL ratings for Growth, Stability, and Quality.

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EQIX shares were trading at $833.14 per share on Tuesday afternoon, down $16.84 (-1.98%). Year-to-date, EQIX has gained 3.45%, versus a 4.07% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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