Investors in Digital Realty Trust, Inc. (NYSE:DLR) had a good week, as its shares rose 6.7% to close at US$132 following the release of its full-year results. It looks like a credible result overall – although revenues of US$3.2b were what analysts expected, Digital Realty Trust surprised by delivering a (statutory) profit of US$2.35 per share, an impressive 21% above what analysts had forecast. This is an important time for investors, as they can track a company’s performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. So we gathered the latest post-earnings forecasts to see what analysts’ statutory forecasts suggest is in store for next year.
Taking into account the latest results, the most recent consensus for Digital Realty Trust from 17 analysts is for revenues of US$3.36b in 2020, which is a reasonable 4.3% increase on its sales over the past 12 months. Statutory earnings per share are forecast to crater 38% to US$1.46 in the same period. Yet prior to the latest earnings, analysts had been forecasting revenues of US$3.36b and earnings per share (EPS) of US$1.80 in 2020. So there’s definitely been a decline in analyst sentiment after the latest results, noting the substantial drop in new EPS forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at US$134, with analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. There are some variant perceptions on Digital Realty Trust, with the most bullish analyst valuing it at US$152 and the most bearish at US$112 per share. The narrow spread of estimates could suggest that the business’ future is relatively easy to value, or that analysts have a clear view on its prospects.
Further, we can compare these estimates to past performance, and see how Digital Realty Trust forecasts compare to the wider market’s forecast performance. We would highlight that Digital Realty Trust’s revenue growth is expected to slow, with forecast 4.3% increase next year well below the historical 16%p.a. growth over the last five years. Compare this to the other companies in this market with analyst coverage, which are forecast to grow their revenue at 5.0% per year. Factoring in the forecast slowdown in growth, it looks like analysts are expecting Digital Realty Trust to grow at about the same rate as the wider market.
The Bottom Line
The biggest concern with the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Digital Realty Trust. They also reconfirmed their revenue estimates, with the company predicted to grow at about the same rate as the wider market. There was no real change to the consensus price target, suggesting that the intrinsic value of the business has not undergone any major changes with the latest estimates.
Still, the long-term prospects of the business are much more relevant than next year’s earnings. At Simply Wall St, we have a full range of analyst estimates for Digital Realty Trust going out to 2024, and you can see them free on our platform here..
You can also see whether Digital Realty Trust is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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