Cogent Communication (CCOI): Volume Discounts Should Drive Elasticity - Oppenheimer
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Oppenheimer analyst, Timothy Horan, reiterated his Outperform rating on shares of Cogent Communications (NASDAQ: CCOI) after the company reported a mixed 2Q16 with strong customer growth, but weak IP transit pricing. These trends drove revenue of $110M, below expectations and EBITDA margins of 31.8% which also missed. Transit pricing was impacted by volume discounts (which likely lowered NFLX revenue 1%). However, the analyst views this as a positive due to expected elasticity/incremental sequential traffic growth.
2Q tends to be CCOI's weakest quarter in terms of sales productivity, and despite tough comps next quarter, the analyst continues to expect over 13% growth YoY on the corporate side. Yielding 4%, and with FCF growing by 20%+, the analyst thinks that the stock pullback is a good buying opportunity with buybacks likely resuming.
No change to the price target of $45.00
Shares of Cogent Communications closed at $36.83 yesterday.
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