Please ensure Javascript is enabled for purposes of website accessibility

Here’s Why QTS Realty Trust Is Plunging Today

By Matthew Frankel, CFP® - Feb 21, 2018 at 10:57AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the data center REIT are down by nearly 20% even though it beat earnings estimates.

What happened

QTS Realty Trust (QTS), a real estate investment trust specializing in data center properties, surpassed expectations on both the top and bottom lines in its fourth-quarter earnings report, but shares are plummeting on Wednesday. As of 11:53 a.m. EST, the stock was down by nearly 20%, and had been off by as much as 28% earlier in the day.

In a nutshell, there were two things in the company's earnings report that seemed to frighten investors: weak guidance and restructuring.

Rows of computer equipment in a data center.

Image Source: Getty Images.

So what

First, QTS reported 2018 funds-from-operations guidance in the range of $2.55 per share to $2.65 per share, well short of analysts' consensus expectation for $2.90. Such a guidance miss is often enough to move a stock lower post-earnings all by itself.

Second, and more significantly, the company announced a restructuring plan that involves "re-focusing our organization around the two primary drivers of demand in our business, Hyperscale and Hybrid Colocation," according to CEO Chad Williams.

Williams said that the simplification of the business will lead to increased long-term profitability, but the company's press releases indicates that many aspects of the restructuring, such as the exit of its non-core products, will take most of 2018 to complete.

Now what

QTS has received one major analyst downgrade so far, and more could certainly be on the way. The problem is the uncertainty that a long-term reorganization effort such as this one creates. If it's successful, today's lower share prices could prove in retrospect to have been an excellent bargain buying opportunity for long-term gains. For the time being, though, I wouldn't be surprised to see the stock linger at lower valuations than it was previously given.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

QTS Realty Trust Stock Quote
QTS Realty Trust
QTS

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.