Digital Realty to Post Q1 Earnings: What's in the Cards for the Stock?

Digital Realty Trust DLR is slated to report first-quarter 2025 results on April 24 after the closing bell. The quarterly results are expected to reflect year-over-year growth in both revenues and funds from operations (FFO) per share.

This Austin, TX-based data center real estate investment trust (REIT) reported a core FFO per share of $1.73 in the prior quarter, surpassing the Zacks Consensus Estimate of $1.70. Results reflected steady leasing momentum with better rental rates amid rising demand. However, higher operating expenses undermined the performance to an extent.

Over the trailing four quarters, Digital Realty’s core FFO per share surpassed the Zacks Consensus Estimate on three occasions and met once, with the average beat being 1.36%. This is depicted in the chart below:

Digital Realty Trust, Inc. Price and EPS Surprise

Digital Realty Trust, Inc. price-eps-surprise | Digital Realty Trust, Inc. Quote

Factors at Play for DLR

Digital Realty is well-poised to gain from its unmatched global footprint of data centers with growing digital transformation, cloud computing and the proliferation of artificial intelligence. Demand is strong in top-tier data center markets, and despite enjoying high occupancy, these markets are absorbing new construction at a faster pace.

With a global presence of 308 data centers in more than 50 metros with decent occupancy, Digital Realty is likely to have capitalized on this upbeat trend, benefiting its first-quarter earnings.

Moreover, this data center REIT has a high-quality, diversified customer base comprising tenants from cloud, content, information technology, network, other enterprise and financial industries. The majority of the tenants are investment grade, and numerous customers use multiple locations across the portfolio. This is anticipated to have aided stable revenue generation for the company during the to-be-reported quarter, driving its top line.

Projections for DLR

For the first quarter, the Zacks Consensus Estimate for rental revenues is pegged at $972.3 million, up 8.7% from $894.4 million reported in the year-ago quarter. The Zacks Consensus Estimate for interconnection & other revenues currently stands at $115.1 million, indicating a 6.5% increase from the year-ago quarter.

The consensus estimate for quarterly total revenues is pegged at $1.42 billion, suggesting a year-over-year increase of 6.8%.

However, high interest rates are anticipated to have cast a pall on its quarterly performance to some extent. Elevated rates imply high borrowing costs for the company, affecting its ability to purchase or develop real estate.

Digital Realty’s activities in the to-be-reported quarter were inadequate to garner analysts’ confidence. The Zacks Consensus Estimate for the company’s quarterly FFO per share has moved down marginally to $1.73 over the past month. However, the figure indicates year-over-year growth of 3.6%. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

What Our Quantitative Model Predicts for DLR

Our proven model does not conclusively predict a surprise in terms of FFO per share for Digital Realty this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.

Digital Realty currently has an Earnings ESP of 0.00% and carries a Zacks Rank of 3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are two stocks from the broader REIT sector — Host Hotels & Resorts HST and Vornado Realty Trust VNO— you may want to consider, as our model shows that these have the right combination of elements to report a surprise this quarter.

Host Hotels & Resorts, scheduled to report quarterly numbers on April 30, has an Earnings ESP of +2.03% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Vornado Realty Trust, slated to release quarterly numbers on May 5, has an Earnings ESP of +2.03% and carries a Zacks Rank of 3 at present.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research