Before diving into the analyst activity this morning, we first wanted to provide some background on the company and its IPO. As mentioned above, SWCH is a data center provider with over 800 customers. The company describes itself as a pioneer in the design, construction, and operation of some of the most reliable, secure, and sustainable data centers in the world.
It currently owns and operates three campus locations, which it calls "primes", which encompass ten colocation facilities with an aggregate of up to 4.0 million square feet of space. These primes include the Core Campus is Las Vegas, NV, the Citadel Campus near Reno, NV, and the Pyramid Campus in Grand Rapids, MI. Additionally, SWCH recently purchased land to develop a fourth prime in Atlanta, GA, which will be dubbed the "Keep Campus."
SWCH's data centers are advanced, providing power densities that exceed industry averages with efficient cooling, while also powered by 100% renewable energy. The company builds its facilities using its "Switch Modularly Optimized Designs, or, Switch MODs. This allows it to rapidly deploy or replace infrastructure to meet its customers' current and future data storage and computer requirements.
More than 95% of its revenue is derived from recurring revenue streams, consisting of the licensing of cabinet space and power (colocation), and connectivity devices. Furthermore, the contracts with its customers typically have terms of three to five years, making its business model fairly predictable.
SWCH got off to a fast start with its October 6 IPO pricing above expectations ($17 vs. $14-$16) and opening for trading with a 28% pop. That day, it gained as much as 46% versus its IPO price. But, the strong start was short-lived as the stock gave back a large portion of its gains. By October 19, shares were trading down to the $18.50 area, roughly 26% from its highs. There hasn't been much in the way of news. Its first earnings report isn't scheduled until November 13. Rather, the sell-off is more a function of short-term traders flipping the IPO to lock in gains.
Quiet Period Expiration
Analyst activity is heavy this morning, with at least ten initiations. Half of them land on the bullish side (Buy, Outperform, Overweight), and half land on the cautious side (Hold, Neutral, Perform). Perhaps the initiation that stands out the most and that is getting the most attention this morning is Goldman Sachs Neutral initiation, with a $18 price target. That target is actually below where SWCH is trading today. Other cautious notes include a Market Perform and $19 target at Wells Fargo, and a Hold with a $20 target at Jefferies.
On the positive side. JP Morgan put an Overweight and $22 target on the stock, and BMO Capital initiated with an Outperform and $23 target.