CoreSite: High Returns in Data

04/29/2014 8:00 am EST

Focus: STOCKS

This featured recommendation is a real estate investment trust that builds, manages, and leases data center space. It operates 15 data centers in eight major communications markets across the United States, explains Briton Ryle in The Wealth Advisory.

CoreSite (COR) serves more than 750 customers, and has a portfolio that totals more than 2.5 million square feet. Its data centers are located in Los Angeles, the San Francisco Bay, and northern Virginia areas, Chicago, Boston, New York City, and Miami.

Its customers include a Who’s Who of corporate America: Disney, Netflix, DreamWorks, Microsoft, Facebook, Google, Amazon, Cisco, Comcast, Xerox, Time Warner Cable, Warner Brothers, etc.

CoreSite has the lowest debt-to-earnings of any of the data center REITs. That means less of its income has to go to debt service. Additionally, CoreSite is in a better position to expand.

Finally, CoreSite has the lowest dividend payout ratio of the data center REITs. That bodes well for increases to the $1.40 a share annual payment.

CoreSite just upped its payment on December 6, so it’s not likely to raise it again for a couple quarters. But we are confident another meaningful hike is ahead in 2014.

CoreSite estimates that it can grow Net Revenue per Square Foot by 48% from available capacity and capacity under construction. Add in land it is holding for development, and capacity can grow 98%.

We think CoreSite is good for 25% total returns for the next few years. That’s pretty good...We rate CoreSite a “strong buy” under $35. Our one-year price target is $42.

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