Analyst Projects Recovery In Cogent's Core Business, Sees Path Towards $500M+ EBITDA

KeyBanc Capital Markets analyst Brandon Nispel reiterated an Overweight rating on Cogent Communications Holdings, Inc. CCOI, raising the price target to $80 from $77.

The company recently reported second-quarter FY23 service revenue growth of 61.5% year-over-year to $239.81 million, missing the consensus of $264.06 million.

In the future, the analyst expects a recovery in CCOI's core Corporate business and Net-centric to remain strong (HSD-LDD). 

Next, the analyst believes CCOI to start on T-Mobile US, Inc. TMUS T-Mobile Wireline's profitability through $220 million in network savings, headcount reduction, and growth in Wavelength sales.

Nispel also projects a path toward $500 million+ in EBITDA and a dividend growth reacceleration, which could make CCOI a potential double. 

The analyst applauds Cogent's primary service offerings, providing dedicated internet access to a $9 billion total addressable market (TAM). 

Nispel remains upbeat about CCOI's net-centric growth, driven by higher video consumption from international markets, with data traffic accelerating to 21% y/y. 

However, the analyst lowered estimates to reflect the classification of T-Mobile contract as a business combination.

Nispel lowered FY23 revenue estimates from $1.042 billion to $962.1 million.

For FY24, the analyst reduced estimates for revenues to $1.186 billion from $1.270 billion.

The analyst also lowered FY23 EBITDA estimates from $216.3 million to $126.9 million.

For FY24, Nispel lowered EBITDA estimates from $313.3 million to $266.5 million.

Price Action: CCOI shares are trading higher by 5.1% to $69.35 on the last check Friday.