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On Tuesday, BofA Securities announced a revision of the price target for Cogent Communications (NASDAQ:CCOI) shares, reducing it from $65.00 to $55.00. The adjustment comes as the stock has declined over 32% in the past six months, currently trading at $56.05. Despite this change, the firm maintained its Underperform rating on the stock.According to InvestingPro data, Cogent currently trades at a high EBITDA multiple of 40.7x, supporting BofA’s cautious stance. InvestingPro offers 12 additional key insights about CCOI’s valuation and financial health.
The adjustment in the price objective was accompanied by a modification in the valuation multiple. BofA Securities now applies a 12.0x 2025 enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple, a decrease from the previous 14.0x multiple. This new multiple still represents a premium to Cogent Communications’ historical average but is lower than the Street’s implied multiple of 16.0x. While the company maintains strong dividend credentials, having raised its dividend for 13 consecutive years with a current yield of 7.17%, it operates with a significant debt burden.
The Underperform rating is sustained due to expectations of a delayed positive turn in Cogent Communications’ wavelength business, which is a component of the company’s service offerings. BofA Securities’ position reflects a cautious outlook on the timeline for improvement in this business segment.
In addition to altering the price target and valuation multiple, BofA Securities updated its estimates in light of the fourth-quarter 2024 results and insights from Cogent Communications’ management. These revisions and comments are part of the ongoing analysis and monitoring of the company’s performance and market position.
Cogent Communications has not yet responded publicly to this new price target and rating affirmation. The market’s reaction to these updates will be observed as investors and other stakeholders consider BofA Securities’ revised stance on the company’s stock.
In other recent news, Cogent Communications reported fourth-quarter revenue of $252.3 million, falling short of the analyst consensus estimate of $258.04 million. The company posted a loss of $0.91 per share, which was better than the expected loss of $1.22 per share. Despite these challenges, Cogent saw significant growth in its Wavelength and IPv4 leasing businesses, with revenues jumping 31.8% and 11.8% sequentially, respectively. KeyBanc Capital Markets maintained an Overweight rating on Cogent, with a price target of $91, citing potential growth catalysts such as Wavelengths and IPv4 developments.
S&P Global Ratings revised its outlook for Cogent Communications from stable to negative due to weaker credit metrics, anticipating leverage to remain above 5.25x in the near future. The company’s leverage increased to 5.5x by the end of 2024, with expectations to maintain this level due to flat organic revenue and EBITDA growth. Additionally, Cogent renewed its headquarters lease in Washington, D.C., extending it until 2030. The lease extension ensures the company’s continued presence at its current location, with a fixed annual rent of approximately $991,691.
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