Cogent Communications rises as KeyBanc upgrades, citing potential for accelerating growth
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Cogent Communications (NASDAQ:CCOI) shares rose on Tuesday as investment firm KeyBanc Capital Markets upgraded the internet service provider, noting its growth should accelerate for the next two years as it repurposes legacy assets from T-Mobile (NASDAQ:TMUS).
Analyst Brandon Nispel raised his rating to overweight from neutral on Cogent Communications (CCOI), stating that the recent acquisition of T-Mobile's (TMUS) wireline business should generate $450M in revenue and EBITDA losses of $180M at the close of the transaction. At the end of the first year, however, EBITDA losses should be less than $80M, as the company cuts headcount and improves network efficiencies. 
"Cash flows from the TMUS purchase agreement provide coverage for initial losses, plus a reasonable level of cushion, and we believe Cogent Communications has an operating strategy to execute," Nispel wrote in a note to clients.
Cogent Communications (CCOI) shares rose more than 2% in premarket trading.
In addition, Nispel said that Cogent Communications (CCOI) is likely to see revenue from its MSD-HSD business grow in 2023 and potentially accelerate in 2024. It looks like commercial vacancies have bottomed and it's possible that the company's Corporate business could start to see growth after eight straight quarterly periods of decline. Nispel noted that occupancy in Cogent Communications (CCOI) buildings went from 94% to 82% during the pandemic, but they have started to stabilize recently and may improve.
The analyst also pointed out that while its Net-Centric segment is expected to slow down after seeing a "streaming data growth surge" during the pandemic, the total revenue growth rate should improve "given the size and relatively mild nature of the Corporate downturn."
Finally, Nispel said that Cogent Communications (CCOI) is likely to continue growing its dividend, which currently yields more than 7%. Growth is likely to be in the range of 7% to 8% in 2023 and between 5% and 7% in 2024 and 2025.
Investment firm Citi recently listed Cogent Communications (CCOI) shares as a buy in the telecom sector, citing quality and momentum.
Analysts are largely positive on Cogent Communications (CCOI). It has a STRONG BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates CCOI a HOLD.