Barclays sees Iron Mountain as undervalued and initiates coverage at Overweight

IRM’s significant discount to the S&P500 is unwarranted, in Barclays's view, given its steady recurring revenue, emerging growth opportunities, and well-covered dividend yield of 5.2%. Barclays projects a 7.6% AFFO/ps CAGR through 2024. Using a 14x multiple on the 2023E AFFO/ps of $4.11, it derives the PT of $58, implying a total return of 26.2%. Although rising interest rates and shifting sentiment have widely pressured valuations lower, IRM’s business has proven resilient during the past few years, and new initiatives should accelerate growth relative to the past, warranting a modest re-rating of the stock. Barclays initiates coverage at OW.

Contributing 88% of 2021 revenue, with a 44% adjusted EBITDA margin, the RIM segment includes the legacy paper storage business, and many adjacent offerings. These include other types of storage and a suite of services, such as document retrieval, pick-up/delivery, and securing shredding. Paper storage faces modestly contracting demand(0-1% annually) , but other components of RIM support continued growth.

IRM has a resilient business model, supported by >$1b in annual cash flow and short duration contracts that offer inflation protection. In recent years, IRM expanded into several adjacent verticals to compliment its legacy paper storage business. IRM has scaled in the data center business over the past five years, and now has properties in nine N.America, Europe, and Asia markets. Exposure to data centers, IT hardware recycling, consumer storage, and an array of services has diversified revenue and maintained occupancy in storage facilities. Medical, legal, financial and government paper storage demand remains strong, with IRM holding boxes for an average of ~15 years. Since 4Q19 management has extracted excess layers within its structure, repositioned the sales organization, and tested more aggressive pricing. This has resulted in a more efficient business, with emerging pricing power.

In January 2022, IRM acquired ITRenew, a hardware recycling business catering to hyperscalers, complementing existing capabilities in enterprise IT asset disposal. Additional M&A could provide upside as IRM bolts-on adjacent capabilities and gains scale in under-penetrated markets.