Deutsche Bank Predicts a Gain of More than 25% for this Undervalued Digital Infrastructure Stock

According to Deutsche Bank, there is a significant purchasing opportunity in DigitalBridge, a little-known provider of digital infrastructure.

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With a buy rating and a share price objective of $18, analyst Matthew Niknam projected a gain of 26.3% from Tuesday's closing.

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Even before a potential economic crisis, according to Niknam, the company's high-growth model and sector resiliency make it a compelling buy. Cell towers, data centers, and other infrastructure-related companies are all owned, operated, and invested in by DigitalBridge.

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The analyst described DigitalBridge's business model as "a novel way to invest in digital infrastructure" in a note published on Tuesday. Given the extremely strong secular and thematic tailwinds associated with 5G, cloud, edge computing, and increasingly data-intensive AI/ML workloads,... Even in the face of a more challenging macroeconomic environment, we see digital infrastructure to be a protective asset class with ample runway for additional capital flows.

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The analyst went on to say that he thinks Wall Street undervalues the company's potential for growth.

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Though the price hasn't yet reflected it, Niknam added, "We believe DigitalBridge's growth screens positively relative to rivals." For comparison, we project fee-related profits growth at a nearly 45% CAGR between 2022E and 2025E (almost twice that of larger Alternative Asset Manager peers), and a comparable outperformance when examining forward distributable earnings growth.

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Niknam acknowledges that the company's recent structural adjustments and rather sophisticated business model can help to explain why the stock appears to be cheap in comparison to its rivals.

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"We think DBRG's business has more space for simplification, which might eventually help it catch up to peers. For instance, the company is consolidating Data Center assets even though it owns just over 10% of them (Digital OpCo sector), which raises its leverage profile, according to Niknam.

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The shares have also lacked a clear "home" due to the shift from a heritage REIT structure to more of an alternative asset manager, which is probably why they are trading at a discount to their more experienced (and larger) alternative asset manager peers.

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The larger scale asset managers introducing funds or harder macroeconomic conditions, he continued, might make DigitalBridge more vulnerable to a significant slowdown in fundraising.

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Shares of DigitalBridge have increased by 35.3% in 2023.