DigitalBridge Group, Inc. (DBRG) is a global digital infrastructure company that is structured as a real estate investment trust (REIT). The investment management company has a portfolio across the digital ecosystem, which includes towers, data centers, fiber, small cells, and edge infrastructure. It manages a total investment portfolio worth $45 billion as of 31st December 2021. DigitalBridge aims to maximize shareholders' value through strategically planned acquisitions to access opportunities within the digital ecosystem space.
Since the beginning of the year, shares of DigitalBridge have slid about 11%, underperforming its benchmark, the Vanguard Real Estate ETF (VNQ), which has dropped about 5.3% during the same period. However, over the past five days, DigitalBridge's share price advanced about 5% after it had announced its intentions to acquire AMP Capital's global infrastructure equity investment management business.
With this in mind, I am going to analyze DigitalBridge’s recent developments, financial performance, and options market activities to see whether DBRG is an attractive REIT to invest in at current levels.
Recent Developments
On April 28th, DigitalBridge Group, Inc announced that its US subsidiary, DigitalBridge Investment Holdco, had won a bid to purchase AMP’s global infrastructure equity arm for $328 million. AMP Capital’s international infrastructure equity platform comprises four investment funds with $5.5 billion in fee-earning assets under management. DigitalBridge's CEO Marc Ganzi said, "This transaction represents a unique opportunity to extend our leadership in digital investment management." Also, this move was welcomed by investors, who pushed DigitalBridge stock up over 6% after the announcement.
DigitalBridge Group's Financials & Valuation
On February 24th, DigitalBridge revealed its fourth-quarter earnings report. In Q4, the company's revenue was up around 65% on a year-over-year basis to $255.86 million, beating Wall Street consensus estimates by $7.65 million. Revenue growth was mainly driven by higher property operating income and fee income.
Also, the REIT's net loss came in at $42.87 million, down significantly from its year-ago net loss of $306.13 million. However, DigitalBridge reported a Funds From Operations (FFO) of ($0.01) a share, missing Wall Street expectations by $0.05.
A $0.05 consensus FFO estimate for the first quarter, ending March 31st, 2022, indicates a 437.50% growth compared to a year prior. However, a $260.30 million consensus revenue estimate for FQ1 of 2022 implies a 17.55% year-over-year deterioration.
Let’s also take a look at some valuation metrics. Important to note that the REIT currently trades with a discount based on FWD P/AFFO and TTM P/S multiples of 18.28x and 2.87x, respectively. These figures come well below the sector median threshold of 18.43x and 6.56x. Besides, DigitalBridge should deliver FWD AFFO growth of 79.67%, compared to the sector's median of 6.71%.
How much volatility are options traders expect for the stock?
Taking a closer look at the September 16th, 2021 option chain, we can determine the approximate price movement using the long straddle options strategy. With that being said, my calculations imply that DBRG stock could rise or fall by about 23% by the September expirations from the $7.50 strike price.
That aside, pay attention to the number of open calls and put contracts. In the DBRG case, the number of open calls at the $7.50 strike price outweighs the open puts by around 4 times. At the moment of writing, there are 214 calls to 57 open puts. This difference comes up with the options traders are bullish on DigitalBridge stock at the moment.
Bullish Options Bets
During the April 28th trading session, there was a purchase of about 28,530 $10.00 January 20th, 2023, call options for $0.45 per contract. Moreover, this transaction brings the total number of open contracts to 28,538 (source: barchart.com). A buyer of those calls needs DigitalBridge stock to rise to $10.45 by the expiration date to break even. That’s an upside potential of about 41.98% from DigitalBridge's current price.
Conclusion
DigitalBridge Group is a leading REIT that focuses on digital infrastructure assets. The company continues to expand its portfolio aggressively through acquisitions, thus increasing the shareholders' value. Besides, the company’s financials and growth prospects look promising. The REIT also looks cheap from a valuation standpoint. Finally, options traders appear to be betting that DBRG stock price will increase in the forthcoming months.
In addition, Wall Street analysts’ average price target for DigitalBridge is $9.88, representing a 34.24% upside from current prices. Hence, I believe DigitalBridge stock is a great "Buy" candidate at these levels.
DBRG shares were trading at $7.12 per share on Friday morning, down $0.24 (-3.26%). Year-to-date, DBRG has declined -14.53%, versus a -11.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.
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