Why IRM Stock Is Trading at Record Levels
Iron Mountain Inc (NYSE:IRM) is a great stock I’ve been following for a number of years now. It’s one of those dividend stocks that most people don’t seem to really talk about, and I’m not sure why. Maybe it’s because, for some, records management isn’t all that exciting.
But there are more than enough compelling reasons why Iron Mountain stock should be on the radar of every yield hog. The company continues to report strong financial results, provide impressive guidance, and reliably pay dividends. On top of that, IRM stock has been trending steadily higher ever since it went public on January 31, 1996.
Iron Mountain is the global leader in records and information management. The company has more than 730 million cubic square feet of global storage solutions in more than 1,380 facilities, approximately 59 countries, and six continents. (Source: “Investor Event & Site Tour,” Iron Mountain Inc, September 20, 2022.)
While Iron Mountain is a real estate investment trust (REIT), it’s not easy to pigeonhole what it does. It’s neither an industrial REIT nor a data center REIT; it’s somewhere in between. Its operations include records management, data management, digital solutions, and secure shredding. The majority of its revenue, 64%, comes from its storage segment, with 36% of its revenue coming from its service segment.
Iron Mountain Inc is good at what it does. In addition to having about 225,000 customers globally, it’s trusted by 95% of the Fortune 1000 companies. The company’s customer retention rate has held pretty steady over the years at 98%.
Some of the industries the REIT serves are energy, finance, health care, insurance, law, and life sciences.
While Iron Mountain Inc has been reporting healthy revenue growth and robust margin expansion, it’s always looking for ways to increase shareholder value.
To that end, the company has made significant progress in shifting its revenue mix to faster-growing businesses, including data centers and emerging markets. The REIT has made serious inroads in fast-growing adjacent businesses, which include cultural and historical artifacts. Iron Mountain has become the global leader in fine art storage and logistics. Moreover, the company is used by every major music label and movie studio to protect films, recordings, and images.
Iron Mountain Inc has been expanding its data center footprint through a number of strategic acquisitions of properties from companies including Credit Suisse Group AG (NYSE:CS), EvoSwitch, Fortrust, and IO Data Centers LLC.
The REIT currently has a number of data centers under construction in the U.S., U.K., and India. Furthermore, it has increased its megawatts under contract from nine in 2016 to 323 now. In the first quarter of this year, it signed 52 megawatts of new and expansion leases.
The global data center market is experiencing major industry tailwinds. Over the next five years, the market is expected to grow by more than $40.0 billion.
Iron Mountain Inc Unveils Major Initiative to Boost Revenue & Earnings
Just because things are going well for Iron Mountain doesn’t mean the company doesn’t want to get a lot bigger and better. Back in September 2022, it unveiled Project Matterhorn, an initiative designed to accelerate its growth. The plan includes investing 16% of the company’s revenue (about $4.0 billion) to capture a larger share of its global addressable market. (Source: Iron Mountain Inc, September 20, 2022, op. cit.)
By building on its key strengths, Iron Mountain Inc is targeting:
- A revenue compound annual growth rate (CAGR) of about 10% to about $7.3 billion in 2026
- An adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) CAGR of about 10% to about $2.5 billion in 2026
- An adjusted funds from operations (AFFO) CAGR of about eight percent to about $1.5 billion in 2026
- About $150.0 million in one-time costs per year for the 2023–2025 period
Project Matterhorn Resulted in Q1 Earnings Beat
On May 4, Iron Mountain announced that its revenue for the first quarter of 2023 (ended March 31) increased by five percent year-over-year to a record $1.31 billion, just missing Wall Street analysts’ consensus estimate of $1.32 billion. Excluding the impact of foreign currency exchange, the REIT’s total revenue increased by 7.5%. (Source: “Iron Mountain Reports First Quarter Results,” Iron Mountain Inc, May 4, 2023.)
Of that, the company’s storage rental revenue grew by eight percent to $810.0 million, while its service revenue inched up by two percent to $504.0 million. On a constant-currency basis, the storage rental revenue went up by 10%, while the service revenue went up by four percent.
The company’s first-quarter net income jumped by 57% year-over-year to $66.0 million, or earnings of $0.22 per share. Its adjusted earnings increased by eight percent year-over-year to $0.42 per share. Its AFFO also increased by eight percent year-over-year to $284.0 million, while its AFFO per share went up by seven percent to $0.97.
Commenting on the results, William L. Meaney, Iron Mountain Inc’s president and CEO, said, “We are pleased to report another quarter of record revenue. Our continued strength, in spite of the turbulent geopolitical and economic times in which we find ourselves, reflects the resilience of our business model and the steadfast commitment of our outstanding team.” (Source: Ibid.)
He added, “The success of Project Matterhorn is exceeding our expectations, and we are on track to continue to provide innovative solutions to meet our customers’ needs.”
In its first-quarter earnings report, Iron Mountain Inc affirmed its full-year 2023 guidance, which includes:
- Total revenue of $5.5 to $5.6 billion, for year-over-year midpoint growth of about 9.0%
- Adjusted earnings in the range of $1.94 billion to $1.97 billion, for year-over-year midpoint growth of about 7.0%
- AFFO in the range of $1.15 billion to $1.17 billion, for year-over-year midpoint growth of about 5.0%
- AFFO per share in the range of $3.91 to $4.00, for year-over-year midpoint growth of about 4.0%
Iron Mountain Stock’s Quarterly Payout Maintained at $0.61/Share
Iron Mountain Inc had a history of raising its dividend annually, but management has held IRM stock’s dividend steady at $0.6185 per quarter since the start of 2020.
On May 4, Iron Mountain’s board of directors again declared a quarterly cash dividend of $0.6185 per share. This works out to a current yield of 4.5%. In comparison, the average dividend yield for the S&P 500 is currently 1.7%.
Iron Mountain stock’s dividend is safe. There’s more than enough room for the company to resume increasing its distribution. In fact, its dividend payout ratio has fallen from 81% in 2019 to 66% in 2022.
In addition to paying reliable, high-yield dividends, Iron Mountain stock has been rewarding buy-and-hold investors. As of this writing, IRM stock is up by:
- 9.0% over the last month
- 16.5% over the last six months
- 14.2% year-to-date
- 8.0% year-over-year
In comparison, the S&P 500 is:
- Up by 0.7% over the last month
- Up by 9.3% over the last six months
- Up by 7.3% year-to-date
- Down by 0.7% year-over-year
Chart courtesy of StockCharts.com
In terms of overall returns, Iron Mountain Inc has a long history of outpacing the S&P 500. Since going public on January 31, 1996, with dividends reinvested, Iron Mountain stock has provided returns of a whopping 4,285%. Over the same time frame, the S&P 500 has provided returns of a respectable, but far less impressive, 569%.
The Lowdown on Iron Mountain Inc
I like to keep an eye on Iron Mountain stock, and for good reason: it has continued to be an excellent REIT stock for both income and growth. The company has a solid balance sheet, it recently reported record revenues and strong earnings growth, and it supplied strong full-year guidance.
Iron Mountain Inc’s consistently excellent financial results have helped juice IRM stock over the last 25+ years. Those results have also helped the company pay reliable, safe dividends.
Those good times should continue. Thanks to organic growth and the launch of its Project Matterhorn initiative, the company’s cash flow should remain robust.