Iron Mountain (IRM – Analyst Report) reported disappointing fourth quarter results and lowered its 2015 revenue and earnings guidance on February 20. This prompted analysts to revise their estimates meaningfully lower for both 2015 and 2016, sending the stock to a Zacks Rank #5 (Strong Sell).
Despite this, shares trade at a lofty 30x forward earnings and sport an enterprise value to cash flow ratio of 18.
Iron Mountain stores records, primarily paper documents and data backup media, and provides information management services to various organizations around the world. The company generates its revenues by renting storage space to its customer base in approximately 1,100 facilities around the globe and providing these customers with an expanding menu of related and ancillary products and services.
Iron Mountain began operating as a REIT in 2014.
Fourth Quarter Results
Iron Mountain reported its fourth quarter results on February 20. Adjusted earnings per share came in at $0.25, missing the Zacks Consensus Estimate of $0.31. Funds from operation, which takes net income (unadjusted) and adds back real estate depreciation expenses, was $0.28 for Q4.
Total revenues rose 1% to $778 million, which was below the consensus of $788 million. A strong dollar was a headwind in the quarter. On a constant dollar basis, revenue rose 5%.
‘Storage Rental’ revenue, which accounted for 60% of total revenue, increased 2% year-over-year, while ‘Service’ declined slightly.
Following soft Q4 results, management lowered its 2015 adjusted EPS guidance from a previous range of $1.23-$1.38 to $1.15-$1.30. It also lowered its revenue guidance from a range of $3.135-$3.290 billion to $3.030-$3.150 billion. This was due in part to foreign currency headwinds.
Analysts revised their estimates lower for both 2015 and 2016, enough to send the stock to a Zacks Rank #5 (Strong Sell). This places Iron Mountain in the bottom 5% of all companies that Zacks ranks based on earnings estimate revisions.
The 2015 Zacks Consensus Estimate is now $1.23, down from $1.34 before the report. The 2016 consensus is currently $1.30, down from $1.45 over the same period. You can see the drop in consensus estimates in the following chart:
Despite weak earnings momentum, shares of Iron Mountain trade at a lofty 30x 12-month forward earnings. And its enterprise value to cash flow ratio certainly doesn’t look like much of a value at 18x.
Investors may be drawn to Iron Mountain’s 5% dividend yield. However, the company has paid out significantly more in dividends the last three years than it has generated in free cash flow. It has plugged this gap with the issuance of significant amounts of debt. Its balance sheet is now highly levered with a debt/equity ratio of 5.4.
The Bottom Line
With weak earnings momentum, continued foreign currency headwinds and lofty valuation, investors should consider looking elsewhere for now.