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A month has gone by since the last earnings report for Cogent Communications (CCOI). Shares have added about 5.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cogent due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Cogent Q3 Earnings Beat Estimates, Revenues Up Y/Y
Cogent reported mixed third-quarter 2020 financial results, with the top line missing the Zacks Consensus Estimate but the bottom line beating the same.
Net loss in the September quarter came in at $5 million or loss of 11 cents per share against net income of $13.7 million or 30 cents per share in the year-earlier quarter. Despite top-line growth, the year-over-year deterioration was primarily caused by higher operating expenses and adverse foreign exchange translation.
Adjusted earnings for the reported quarter were 23 cents per share, which beat the consensus estimate by a penny.
Quarterly service revenues were $142.3 million compared with $136.9 million in the year-ago quarter. On a constant-currency basis, the 3.1% increase was backed by higher on-net revenues. However, the top line lagged the consensus estimate of $143 million. Also, owing to COVID-19 induced challenges, Cogent witnessed a decline in sales productivity as new potential customers delayed the purchase of services, while existing customers reduced their number of secondary service locations.
On-net revenues increased 5.7% to $105.1 million from $99.4 million in the year-ago quarter. The increase was primarily driven by 3.3% growth in on-net customer connections. On-net service is provided to customers located in buildings that are physically connected to Cogent’s network by its facilities. The number of on-net buildings increased by 113 year over year to 2,884 as of Sep 30.
Off-net revenues slipped 0.9% to $37.1 million from $37.4 million in the year-ago quarter. Off-net customers are located in buildings directly connected to the company’s network using other carriers’ facilities.
Total operating expenses were $115.9 million compared with $111.2 million in the prior-year quarter led by higher amortization and selling, general and administrative expenses. Operating income was $26 million, up from $25.8 million. Adjusted EBITDA totaled $54.7 million compared with $50.6 million in the year-ago quarter for respective margins of 38.4% and 37%.
During third-quarter 2020, the company registered 88,509 customer connections compared with 85,692 in the year-ago quarter. The 3.3% increase was backed by improvement in both on-net and off-net customer connection tallies.
Despite the global pandemic, Cogent hiked its dividend for the 33rd consecutive quarter, which indicates its robust cash flow position. The company increased its quarterly dividend by 2.5 cents per share to 73 cents for fourth-quarter 2020. The amount is payable on Dec 4 to shareholders on record as of Nov 20.
Cash Flow & Liquidity
During the first nine months of 2020, Cogent’s net cash from operating activities was relatively flat at $102.7 million. As of Sep 30, 2020, the company had $393.3 million in cash and cash equivalents with total current liabilities of $95.2 million.
Due to the current macroeconomic headwinds triggered by the COVID-19 pandemic, Cogent has stated that it is likely to encounter financial difficulties in the near term coupled with a significant downward trend in customer orders, supply chain disruptions, lower corporate installs and reduced customer connections. Backed by the current work-from-home trend amid COVID-19 induced lockdown, the company witnessed a positive impact on net-centric revenues in the reported quarter. Nevertheless, the company expects the global economic disturbance and government restrictions to have a negative impact on its business operations in the long run.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -34.78% due to these changes.
Currently, Cogent has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Cogent has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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