4 Reasons Why BofA Is Bullish On Zayo Group
Communication infrastructure services provider Zayo Group Holdings Inc (NYSE: ZAYO) earned a bullish initiation at Bank of America Merrill Lynch, with the firm predicating its rating on four factors.
The Analyst
Analyst Joshua Frantz initiated coverage of the shares of Zayo with a Buy rating and $43 price target.
The Thesis
BofA's bullish stance is underpinned by four factors, Frantz said in a Friday note:
Broadband demand is on the rise as end users consume more data through high-bandwidth applications, and connectivity needs are increasing thanks to cloud adoption and 5G, the analyst said.
The shifting market structure is an opportunity as well as a risk due to the highly concentrated nature of the enterprise telecommunications services market.
BofA expects a recent sales force reorganization to help lower Zayo's churn and increase sales.
Incremental M&A could create "a deep asset moat."
The merger of Centurylink Inc (NYSE: CTL) and Level 3 Communications, two of the four largest companies in the sector, is positive for Zayo due to the improvement in the pricing environment and market share opportunities. The company could be stymied by the formidable competitive threat posed by Centurylink and potential churn headwinds, Frantz said.
BofA also noted Zayo's plan to convert to a REIT, which Frantz said allow it to reduce cash taxes and potentially attract a new investor base.
The Price Action
Zayo shares have lost about 7.5 percent year-to-date.
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Latest Ratings for ZAYO
May 2018 | Bank of America | Initiates Coverage On | Buy | |
Apr 2018 | Deutsche Bank | Upgrades | Hold | Buy |
Apr 2018 | Raymond James | Upgrades | Market Perform | Outperform |
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