EQIX Equinix Inc

Global data center solution and service provider Equinix Inc. (EQIX) recently announced that it will be buying back shares worth $250.0 million by December 2012, as approved by its board of directors.

Equinix did not mention its intention of repurchasing shares at the earnings call, so this would be a later development. However, the company did mention that it would be making strategic capital investments, so we’ll wait and see what it does in that respect.

In any case, a share repurchase program is good news because it is a way of returning cash to investors rather than stashing it in the hope of future growth opportunities. The recent momentum in its business has enabled Equinix to build enough of a cash balance for the purpose. The company has not made any repurchases in the past few years.

Equinix ended the recent financial quarter with more than a billion in cash, and half of which will go toward share buybacks and the cash settlement of $250.0 million in convertible debt due April 2012.

Along with the buyback announcement, Equinix reiterated its 2011/2012 guidance and reaffirmed its target of achieving $3.0 billion in annual revenue by 2015. Moreover, the company is planning to deliver positive adjusted free cash flow by 2013.

The company delivered mixed third quarter results with earnings per share coming below our expectation. However, revenue improved on a year-over-year basis. We believe further growth in client base and strategic acquisitions will enhance the company’s revenue potential and expand its geographic reach.

Moreover, we are encouraged by Equinix’s decision to expand its current facilities as well as its recurring revenue model. Though competitive concerns naturally remain, given offerings from AT&T Inc. (T) and Verizon Inc. (VZ) and the European exposure should also not be discounted, we believe the share repurchase program and positive free cash flow generation will inspire investor loyalty.

Equinix holds a Zacks #2 Rank, implying a short-term Buy rating.

 
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