GDS Holdings stock price target raised to $39 at TD Cowen

On Monday, TD Cowen raised the price target on GDS Holdings (NASDAQ:GDS) to $39.00, up from the previous $27.00, while maintaining a Buy rating on the company’s shares. The stock, currently trading at $29.02, has shown remarkable momentum with a 361% return over the past year and is trading near its 52-week high of $29.17. According to InvestingPro data, this impressive rally has pushed the stock above its calculated Fair Value. Analyst Michael Elias updated the firm’s model to reflect GDS Holdings’ third-quarter earnings of 2024, which prompted the adjustment.

Elias’s decision is based on a discounted cash flow (DCF) valuation using a 15.0x exit multiple and an 8.7% weighted average cost of capital (WACC). The new valuation suggests the stock has significant growth potential from its prior target. With revenue growing at 12% year-over-year and an EV/EBITDA multiple of 20.2x, InvestingPro subscribers can access 12 additional key insights about GDS’s valuation and growth prospects through the comprehensive Pro Research Report.

TD Cowen anticipates GDS Holdings to report fourth-quarter results that slightly exceed Wall Street’s expectations, including revenues and EBITDA (earnings before interest, taxes, depreciation, and amortization). While the company currently operates with significant debt of $7.2 billion and posted a loss per share of $3.09 in the last twelve months, the firm expects GDS to present an initial 2025 guidance that could surprise positively in terms of revenue and EBITDA.

Regarding the fourth-quarter leasing figures, the company is expected to report 17.2K square meters (SQM) of space leased, which is a decrease from 28.7K SQM in the third quarter and below the trailing twelve-month average of 33.0K SQM. However, the report from the third-quarter earnings call highlighted a record number of Gross Organic Tier 1 Installs for GDS Holdings, with 25.6K SQM installed, driven in part by demand related to artificial intelligence (AI).

Management expressed confidence in achieving the target of approximately 60K SQM of net installations in 2024, citing better visibility into customer deployment plans. They also forecast an increase in the utilization rate to the high-70s percentage by the end of 2025, up from the current low-70s.

Lastly, the analyst pointed to the company’s strong sales pipeline, reinforced by 431 megawatts (MW) of total customer commitments, as a positive sign for GDS Holdings’ future growth and performance.

In other recent news, GDS Holdings reported third quarter revenues of RMB2.97 billion ($422.6 million), falling short of analyst expectations, and adjusted EBITDA rose to RMB1.30 billion ($184.6 million). Despite the revenue miss, the net loss narrowed from the previous year to RMB231.1 million ($32.9 million). The company maintained its full-year 2024 guidance, but increased its capital expenditure forecast due to business expansion.

Morgan Stanley (NYSE:MS) maintained its Overweight rating on GDS Holdings with a price target of $30.00, in light of recent changes to U.S. policy on artificial intelligence. The policy shift may benefit DayOne, a subsidiary of GDS, particularly with regards to the import of high-end graphics processing units from the U.S.

Jefferies also reaffirmed its Buy rating on GDS, maintaining a price target of $27.06. The firm cited GDS’s growth potential and competitive position in the Chinese market, as well as its strategy to secure 200 megawatts of new orders annually.

These are recent developments in the company’s operations and market standing, as per the reports by Morgan Stanley and Jefferies.

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