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On Tuesday, UBS analyst team at UBS upgraded Digital Realty (NYSE:DLR) Trust stock from Neutral to Buy and significantly increased the price target to $205 from the previous $147. The upgrade was based on the expectation of continued strong demand for data center services and the potential for rent improvements. According to InvestingPro data, the company, currently valued at $59.58 billion, is trading at a notably high earnings multiple with a P/E ratio of 142.
Digital Realty Trust, a real estate investment trust (REIT) specializing in data center properties, has seen its shares outperform in 2024, according to UBS analysts. The stock has delivered an impressive 41.58% return over the past year, with a 20.29% gain in the last six months alone. The team at UBS believes that the momentum could continue, citing an unabated demand pipeline for data center services as a primary driver.
The UBS analysts project that Digital Realty will experience funds from operations (FFO) per share growth of 5% in 2025, which is expected to accelerate to 7% in 2026 and then to 10% by 2027. The forecasted growth is attributed to stronger renewal spreads, higher yields on new developments, and sustained booking strength from the previous year.
InvestingPro data shows the company has maintained dividend payments for 21 consecutive years, currently offering a 2.72% yield.For deeper insights into Digital Realty Trust's valuation and growth prospects, investors can access comprehensive analysis through the Pro Research Report, available exclusively on InvestingPro, along with 10+ additional ProTips and extensive financial metrics.
The UBS team's outlook is optimistic due to the ongoing high demand for artificial intelligence and overall hyperscale demand. This demand is anticipated to support the growth trajectory of Digital Realty Trust's financials in the coming years.
The analyst comments provided a clear rationale for the upgrade and revised price target, stating, "We upgrade DLR shares to Buy and increase our price target to $205. The shares outperformed in '24 but we believe risk is skewed to the upside given an unabated demand pipeline and the potential for further improvement in data center rents."
The UBS team's analysis expects that the company's growth will be driven by a combination of stronger renewal spreads and higher yields on new developments, along with a continuation of the bookings strength realized in 2024.
In other recent news, Digital Realty Trust has made several significant financial moves. The company increased its authorized shares of common stock from 392 million to 502 million and entered into an At-The-Market (ATM) Equity Offering Sales Agreement potentially worth up to $3 billion with a consortium of financial institutions.
Digital Realty also issued $1.15 billion in 1.875% Exchangeable Senior Notes due in 2029. The net proceeds from these offerings are intended to be used for various purposes, including repaying borrowings and acquiring additional properties or businesses.
Analysts from Citi, Deutsche Bank (ETR:DBKGn), Mizuho (NYSE:MFG), and RBC Capital Markets have responded to these developments with varied ratings and price targets. Digital Realty's third quarter of 2024 saw new leasing volume reaching $521 million and a backlog of leases set to commence increased to nearly $860 million. The company's Funds From Operations (FFO) of $1.67 slightly surpassed the consensus estimate of $1.66.
Following these results, the company raised its guidance midpoint to $6.70, slightly above the Street's expectation of $6.66. These are recent developments that provide insight into the company's financial performance and strategic moves.
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