Cogent Communications jumps as wireline deal leads to two-notch BofA upgrade
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Cogent Communications (NASDAQ:CCOI) has made its biggest single-day jump in years, up 8.6%, following a double upgrade at BofA to Buy from Underperform.
That's coming alongside an expected boost to free cash flow from its recent acquisition of Sprint Wireline, analyst David Barden said.
Cogent just closed an acquisition of the legacy Sprint wireline fiber network for just $1 (T-Mobile (TMUS) is taking a $1B charge on the transaction), complementing its On Net connectivity.
That gets Cogent an entry into the high-capacity wavelength services market (and dozens of new enterprise customers), along with $700M in cash from T-Mobile, Barden noted.
He expects Cogent management to "swiftly leverage its existing platform and salesforce to realize synergies and transition the acquired business from losses to profit." And the combined business should eclipse current annual run-rate free cash flow of $50M-$60M, at greater than $150M in 2024 and beyond, he said.
Previously, BofA was concerned with Cogent's legacy business and "obstacles to rejuvenating its office-centric bandwidth service offering" which made up 56% of fourth-quarter revenues, Barden said.
Now he's implementing a two-notch upgrade on the expected boost to free cash flow, as well as related accretion in earnings before interest, taxes, depreciation and amortization and the now underrepresented new sales growth vectors.
Barden boosted Cogent's price target to $85, implying 15% further upside from here.
Seeking Alpha analyst MontrealValue in February called Cogent's acquisition a "unique special situation" that could lead to 85% upside.