We are downgrading Iron Mountain Incorporated (IRM) to Neutral from Outperform with a lower six-month price target of $26.00, as we don’t see any near-term drivers of growth. Our price target represents a 2010 P/E multiple of 24.3x, a premium to the industry average.

We currently do not see much upside to the shares from current levels due to softness in Services revenue (approximately 46% of total revenue), driven by the weak economy. We believe the stock is over-priced and near-term momentum is not envisioned.

As long as the company continues to perform at a high level, we believe the shares can maintain their current valuation, and perhaps increase slightly, but we would not chase the stock at these levels.

The company’s third quarter results were in line with Zacks Consensus Estimates. However, IRM narrowed the guidance range for 2009. It has also adopted an aggressive acquisition strategy to stimulate internal growth, especially in storage revenue. The company has also built a strong platform for future growth.

The continuing strength in the information protection and storage business has driven steady profits for IRM. With focused execution, substantial recurring revenue, steady margins, earnings momentum, cost savings, international expansion and proven value proposition, we remain optimistic on the company’s long-term prospects.

Despite these positives, we would like to caution investors about the high level of debt, the high valuation and dependence on large acquisitions for growth. Moreover, softness in the Services business, strong competition and foreign currency fluctuations are other negatives.

Although Iron Mountain has a strong product and market position, the company is still small relative to competitors such as Equifax (EFX), R.R. Donnelley & Sons (RRD), Dun & Bradstreet Corp. (DNB) and Hewitt Associates, Inc. (HEW).

Shares of Iron Mountain are currently trading at a P/E multiple of 22.9x our 2010 earnings estimate of $1.07, a premium to the industry average and the S&P 500. Over the last five years, Iron Mountain’s shares have traded in a range of 25.1X to 50.8X trailing 12-month earnings.
Read the full analyst report on “IRM”
Read the full analyst report on “EFX”
Read the full analyst report on “RRD”
Read the full analyst report on “DNB”
Read the full analyst report on “HEW”
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