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Investing.com - Wells Fargo (NYSE:WFC) upgraded Cogent Communications (NASDAQ:CCOI) from Underweight to Overweight on Monday, setting a price target of $45.00. The upgrade comes as the stock trades near oversold levels according to InvestingPro data, having declined over 57% in the past six months. The company maintains a notable 12% dividend yield, having increased dividends for 13 consecutive years.
The upgrade comes as Wells Fargo analyst Eric Luebchow noted that "the worst of the Sprint legacy declines is behind it" and that the "risk/reward skew is favorable at current valuation with upside optionality from waves + asset sales." While InvestingPro analysis indicates the company operates with a significant debt burden, its current ratio of 2.31 shows liquid assets exceed short-term obligations.
The firm addressed concerns about CEO Schaeffer’s insider sales, explaining they were necessary "to settle personal debts against his commercial real estate portfolio and pledge stock for his taxes." With $110 million of his stake sold year-to-date, Schaeffer now owns only about 1.4% of restricted shares, suggesting "the risk of future stock sales is nearing an end."
Wells Fargo expects Cogent can achieve more than $6 of free cash flow per share by 2028, supporting their valuation. Their analysis shows an upside scenario value of $95 in their discounted cash flow model, versus a downside of $25.
The firm acknowledged that the biggest near-term risk centers around a potential dividend cut, but noted the current yield of approximately 12% suggests "the market is already assigning a high probability" to this possibility.
In other recent news, Cogent Communications reported a second-quarter 2025 earnings per share (EPS) of -$1.21, which fell short of the forecasted -$0.99. The company’s revenue also slightly missed expectations, coming in at $246.2 million compared to the anticipated $247.45 million. Following these results, S&P Global Ratings downgraded Cogent Communications to ’B’ from ’B+’, citing a sharp increase in leverage to 7.5x as of June 30, 2025. The rating agency assigned a negative outlook to the company, indicating potential for further downgrade if growth in Cogent’s Wavelength business does not materialize. Additionally, TD Cowen lowered its price target for Cogent Communications to $62 from $77, although it maintained a Buy rating. The revision was influenced by the company’s lower-than-expected EBITDA and disappointing Wave service installations. There were no significant updates regarding Cogent’s ongoing data center sale process. These developments highlight the challenges Cogent Communications is facing in its financial performance and strategic initiatives.
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