Why RBC Downgraded DuPont Fabros

• In a recent report, RBC Capital Markets analysts led by Jonathan Atkin and Michael Carroll downgraded DuPont Fabros Technology, Inc. (NYSE: DFT) from Outperform to Sector Perform on three factors outlined below.
• The firm also trimmed its price target for the stock from $34.00 to $29.00.
• Shares of DuPont Fabros are down more than 4.4 percent on Tuesday.

According to the research note, there are three main reasons behind this downgrade:

1) Rebalancing considerations – DuPont Fabros is not as likely to outperform peers as it once was.

2) The business’ exposure to large-tenant leases creates “concerns about tenant concentration and renewal spreads.” Re-pricing is also a source of concern. While a strategic review could drive initiatives (like pursuing smaller, higher-priced retail business) conceived to alleviate this, the analysts believe customer concentration will remain an issue for the foreseeable future, “partly as a result of additional leasing with existing wholesale tenants. DFT has four customers contributing greater than 10% of annualized rent, representing 61% of annualized rent. The fifth-largest customer contributes approximately 5% of annualized rent.”

3) A reduced price target that now properly reflects DuPont Fabros’ tenant mix and related risks. The experts note that, while the target carries some potential upside, they don’t see many catalysts for the shares.

Disclosure: The author holds no stakes in any of the securities mentioned above.