Scotiabank has downgraded Digital Realty Trust (NYSE:DLR) to Sector Perform from Underperform, citing a short-term earnings outlook. This move comes as the 2024 earnings growth is projected to be constrained by recent asset sales.

Anticipating core FFO per share of $6.60-$6.75 for 2024, the data center REIT falls short compared to 2023’s core FFO of $6.59. This guidance is notably below the consensus of $6.83. Furthermore, the company’s Q4 core FFO has failed to meet the average analyst estimate, leading to a 7.3% plunge in Digital Realty Trust (DLR) stock in Friday morning trading. It’s worth noting that Digital Realty’s stock price surged by 22% in the six months leading up to its Q4 earnings report, outpacing the S&P 500’s 13% increase.

Notably, due to DLR stock’s “strong performance and the diminished upside to Scotia’s unchanged target price,” the firm has revised their recommendation. The firm now sees fewer prospects for the stock over the short term, especially as the company grapples with the impact of significant asset dispositions.

Scotiabank remains optimistic about the long-term prospects for data centers. However, in the short term, the firm believes the stock could be range-bound until the underlying earning power catches up to the share price, as mentioned in a note to clients. The Sector Perform rating aligns with the SA Quant rating and the average SA Analyst rating, both at Hold, and diverges from the average Wall Street rating of Buy.