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In a concerted effort to deploy rural broadband solutions across the United States, Zayo Group Holdings, Inc. ZAYO recently teamed up with Microsoft Corporation MSFT. Per the deal, Zayo will foster economic development and deliver seamless low-latency core fiber connectivity with a dedicated network infrastructure to some unprivileged communities, backed by Microsoft’s affordable broadband access initiative.
Dubbed Microsoft Airband Initiative, the venture was initiated in 2017 to eradicate the rural broadband gap across the United States, and was expanded worldwide last year. It has been successful in combining private sector capital investments with targeted support from public sector organizations to provide basic employment, education and healthcare amenities to needy communities, with the help of excellent network connectivity.
Given Zayo’s significant presence across Tier 1, 2, 3 and 4 U.S. cities, Airband works with multiple Internet access providers, equipment makers and local entrepreneurs to provide high-speed connection with the help of TV white space spectrum technology. This spectrum band has excellent broadcasting characteristics and large parts of it are unused in rural areas. Currently comprising 10 service provider partners, the Microsoft-backed undertaking aims to augment network connectivity to at least 3 million people in rural America by July 2022. Financial terms of the deal have not yet been disclosed.
Markedly, Zayo continues to enhance global reach by augmenting its fiber footprint and forging partnerships with local service providers. It has also been witnessing broad-based demand across all customer verticals, which should drive its top line. Its multi-site data center portfolio, capability to connect globally over its network and ability to customize solutions are key growth drivers.
The company is well poised to gain from a diversified blue chip customer base that comprises the largest and most sophisticated users of bandwidth. It emphasizes on less than 12-month payback deals while opting for investments like e-rate transactions, mobile infrastructure and long-haul fiber. Such deals leverage its existing assets in conjunction with new builds. The company aims to grow the network business at 5% and beyond while controlling expenses to boost OpEx efficiency. All these factors are likely to deliver strong free cash flow yield and attractive return on invested capital.
Management is bullish about the prospects of its largest business segment, Fiber Solutions, as it is witnessing a very strong deal momentum. Over the past year, the stock has outperformed the industry with an average return of 35.9% compared with the 5.1% rise of the latter.
Zacks Rank & Stocks to Consider
Zayo currently has a Zacks Rank #3 (Hold).
Few top-ranked stocks in the broader industry are Perion Network Ltd. PERI and PCTEL, Inc. PCTI, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Perion exceeded estimates in each of the trailing four quarters, the positive earnings surprise being 87.9%, on average.
PCTEL exceeded estimates in each of the trailing four quarters, the positive earnings surprise being 150.6%, on average.
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