Why Pacific Crest Calls Equinix A 'Must-Own Stock'

Pacific Crest reaffirmed its Overweight rating on Equinix Inc (NASDAQ: EQIX), saying it is a "must-own stock," as the company has potential to surpass its own financial objectives.

Equinix is the largest provider of network-neutral colocation and interconnection service with approximately 145 Internet Business Exchanges (IBXs) across the Americas, EMEA and Asia-Pacific.

The company expects its revenue, adjusted EBITDA and adjusted funds flow from operations (AFFO) of greater than 10 percent, 12 percent and 14 percent, respectively, between 2016 and 2020.

Related Link: Barclays Raises Equinix Price Target Ahead Of Analyst Day

Equinix, which serves more than 8,000 customers in 40 major markets across the three global regions, expects its carrier-neutral and interconnection TAM to grow greater than 8 percent; the incremental enterprise opportunity is estimated to be more than $10 billion.

'Must-Own Stock'

"With these targets in mind, Equinix was typically conservative, and we believe the potential to outperform these targets is high, particularly as a result of increased enterprise cloud adoption," analyst Michael Bowen wrote in a note.

Bowen noted that it appears some estimates remain too low, which could provide upside for the shares. In addition, Equinix stated that it expects AFFO/share of greater than $18.00 in 2017, which compares to consensus of $18.10 and Pacific Crest's $18.42. for 2016; the analyst estimates AFFO/share of $14.43.

In addition, with long-term guidance laid out, Bowen sees consensus estimates and targets to move higher, which should be a near-term positive for the stock.

"Over the longer term, Equinix has established a competitive moat that is likely to be difficult to replicate and gives us confidence in the long-term business model," Bowen added.

Bowen also reiterated his $457 price target on the stock, implying an upside of 18.6 percent over Thursday's closing price.

At the time of writing, shares of Equinix were down 2.13 percent on the day to $377.21.