The Case Against Equinix
Web Editor, "Mad Money"
When Equinix this week cut its revenue guidance, investors took the stock down a hideous 32 percent to about $72 from $105. But this data-center company wasn’t the only one to get hurt. Those same investors gave a nice, clean haircut to any and all related plays, too, including Salesforce.com and VMware. But was that new ‘do deserved?
Absolutely not, Cramer told viewers during this week’s “Sell Block.”
He’d panned Equinix as far back as Oct. 22 of last year, saying the company’s business model was under pressure. See, EQIX operates warehouses of servers to support both public Internet and other private networks. But with a new space-saving server processor from Intel on the market, and cloud computing and virtualization software reducing the need for physical servers as well, the economics of the data-center industry “were changing,” Cramer said. That’s why he told viewers to sell.
It took awhile for his thesis to play out, but it did in the end. And for a company that earns a good amount of its money through recurring revenues, that 2.2% guidance cut is “a pretty big deal,” Cramer said. Equinix on Thursday may have filed an 8-K talking up the fundamentals of its business, but the “Mad Money” host sees no reason to own this stock. The reasons he laid out for selling last year haven’t changed. Investors then should use the unwarranted jump in share price that 8-K generated to cash out. But they can give VMW and CRM another look as soon these stocks settle down.
One company that has earned its way out of the “Sell Block” is IBM . In addition to having a bullish chart—noted technician John Roque says the stock could soar 51% to $210—Cramer pointed to earnings that are expected to grow at between 12% and 15% over the next five years. But still IBM trades at just 12 times earnings.
That’s “pretty inexpensive,” Cramer said, “even as the stock’s at the 52-week high.”
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