Digital Realty Trust: A Strong FFO Track Record and Analyst Optimism Signal a Buy Ahead of Q2 Results

As Digital Realty Trust (DLR) prepares to report its Q2 2025 earnings on July 24, investors are primed for another quarter of outperformance. The company's consistent FFO (Funds from Operations) growth, robust Q1 performance, and overwhelmingly bullish analyst sentiment position DLR as a compelling buy ahead of its results. Let's dissect why this infrastructure giant could deliver further upside—and why its current valuation lags behind its potential.

A Track Record of Beating Estimates: FFO Growth as a Catalyst

Digital Realty has established itself as a master of exceeding expectations, having beaten or matched FFO estimates for five consecutive quarters, including a 2.3% beat in Q1 2025. In that quarter, Core FFO per share rose to $1.77, a 6% year-over-year jump, while rental revenues grew 7.4% annually to $960.5 million. This outperformance wasn't a fluke: renewal leases saw 5.6% cash-based rental rate increases, outpacing the 4–6% guidance midpoint, and the company's backlog of signed-but-not-commenced leases hit a record $919 million—a clear indicator of future revenue strength.

The consistency here is key. Even as total revenue dipped slightly sequentially (down 2% from Q4 2024), the year-over-year growth of 5.7% to $1.4 billion—and a 11% surge in Adjusted EBITDA—demonstrate resilience in a competitive market. With Q2 typically a seasonal lull, DLR's ability to leverage its $919 million backlog and $1.7 billion U.S. Hyperscale Data Center Fund (launched in Q1) could keep FFO momentum intact.

Analyst Sentiment: 19 “Strong Buys” and a Bullish Consensus

The numbers speak for themselves: of 28 analysts covering DLR, 19 have issued “Strong Buy” ratings, while the remaining 9 lean neutral or cautious. The mean price target of $187.52 suggests an 8.6% upside from current levels (as of June 19, 2025). This optimism isn't misplaced. Analysts are pricing in:
- Continued FFO growth: DLR raised its full-year 2025 Core FFO guidance to $7.05–$7.15, up from $7.00–$7.10, implying a 4.8% increase over 2024's $6.71.
- Strategic expansion: The Indonesia joint venture (Digital Realty Bersama) and U.S. land acquisitions (e.g., Atlanta's 100-acre parcel) are expected to drive long-term NOI growth.
- Debt management: With net debt/EBITDA at 5.1x—well below its 6.0x target—DLR retains flexibility to pursue accretive deals.

Valuation: Undervalued Relative to the Bull Case

At current levels, DLR trades at roughly $172.50, a 14% discount to the $187.52 mean target. This gap exists despite:
- A record backlog and 7.4% rental revenue growth in Q1, suggesting strong execution.
- Analysts' 2026 Core FFO estimates of $7.55, implying a 7.4% annual growth rate from 2025.
- A 4% stock surge post-Q1 results, yet the broader market hasn't fully priced in DLR's secular growth tailwinds (e.g., hyperscale demand, cloud adoption).

Investment Thesis: Buy Ahead of Q2, Play the Catalyst

The July 24 earnings report is a critical catalyst. If DLR replicates its Q1 performance—beating FFO estimates again while signaling further backlog growth—the stock could rally toward the $187.52 target. Key metrics to watch:
- Q2 Core FFO per share: Analysts are likely modeling ~$1.73–$1.75, but DLR's Q1 beat suggests upside.
- Rental revenue trends: Any acceleration in the 0–1 MW segment (which grew 54% in Q1) or interconnection revenue (up 69%) would be bullish.
- Balance sheet updates: Management may highlight progress on the Hyperscale Fund or debt-reduction metrics.

Risks to Consider

• Economic slowdown: A recession could dampen hyperscale demand or leasing activity.
• Interest rate volatility: Higher rates might pressure DLR's debt-heavy balance sheet (though its fixed-charge coverage of 4.9x provides a buffer).
• Competition: Rival data center REITs like Equinix or CyrusOne could undercut pricing.

Final Take: A Strategic Buy Now

Digital Realty's combination of operational consistency, strategic capital allocation, and analyst enthusiasm creates a compelling risk/reward profile. With the stock trading below its mean target and Q2 results offering a clear upside catalyst, now is an ideal time to initiate a position in DLR.

For income investors, DLR's 3.2% dividend yield (with a 4.9x fixed-charge coverage ratio) adds a safety net. For growth investors, the path to $187.52—and beyond—is supported by DLR's proven ability to execute in a high-demand sector.

Recommendation: Buy DLR ahead of Q2 results. Set a target of $190 by year-end 2025, with a $165 stop-loss to manage risk.