Why CyrusOne Is a Great Long-Term Bet on Data

The colocation data center business is thriving. With a strong chance of stock price appreciation and an attractive dividend payment, CyrusOne may be one of the best ways to play data.

Feb 27, 2014 at 12:00PM

The "cloud" by now is an old term and not as exciting as it once was, but the industry's growth remains robust. Instead of jumping onboard with the incessantly analyzed, richly priced pure plays on the cloud industry, investors can look at third-party businesses that service the massive growth. An example of this is CyrusOne (NASDAQ:CONE). CyrusOne is an enterprise-level data center owner and manager with strong potential offered to investors at a relatively reasonable price. The company, which has only been available to public investors since mid-January of last year, has barely broken even in terms of stock price, but those short-term movements fog an otherwise attractive business. Here's the latest.

Earnings update
In CyrusOne's fourth quarter, sales rose 25% to more than $72 million as the company continues to add its colocation enterprise data centers around the country. Funds from operations and adjusted funds from operations rose 40% and 54%, respectively. For REITs and real estate-centered businesses, FFO and AFFO are the go-to measurements for evaluating the performance of the assets.

CyrusOne is quickly making its presence known on the East Coast of the U.S. (a previously underserved region) with the addition of 14 acres outside of Washington, D.C., in northern Virginia. The expected customer base for the future development is obvious. The company also picked up an additional 22 acres in Austin, Texas.

For the full year, the company generated $72.4 million in AFFO, aiding the company in bumping up its dividend payment an impressive 31% to $0.21 per share.

Why it works
It's an oversimplified explanation, but CyrusOne's line of business is in high demand that will remain there for years to come. As data increasingly becomes the currency of the future, businesses and governments will need more enterprise solutions than ever, and CyrusOne's focus on colocation centers makes perfect sense. Colocation is cost-effective for clients as they are pretty much turnkey data centers available for lease.

CyrusOne's success in renting its locations is noteworthy. Utilization was at 85% in the recent quarter, and the company has a rent churn rate of just more than 1%. This also makes CyrusOne's revenue easily forecasted -- a rarity among tech-centered businesses.

At nearly 36 times forward earnings, CyrusOne isn't going to attract the bargain hunters in the investment world, but its substantial growth prospects and near-4% dividend yield make for a very attractive growth stock. Investors can be sure that CyrusOne's sales and cash flow will grow in the coming years, and could very likely see substantial capital appreciation as the company becomes a larger player in the industry. With the added bonus of quarterly income, the stock leaves little for investors to dislike.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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