DA Davidson Starts Cogent Communications (CCOI) at Neutral; Strong Growth Outlook and Possible Takoever Appeal, But Valuation Concerning

DA Davidson initiates coverage on Cogent Communications (NASDAQ: CCOI) with a Neutral. PT $16.00.

DA analyst says, "On the Net-centric side of CCOI’s business, Cogent has ~10% revenue market share compared to the combined Level 3 (Nasdaq: LVLT) / Global Crossing (Nasdaq: GLBC) at ~40%. Cogent is currently offering a special promotion to ~600 customers that use LVLT and GLBC but not Cogent. We expect CCOI to pick up some share due to the LVLT/GLBC merger—we estimate around $50 million—since customers who use both LVLT and GLBC will look to diversify their suppliers."

"We are estimating $0.11 per share in earnings in 2011, $0.65 per share in 2012, and ~$1.42 per share in 2013. Q3 earnings will be in line with consensus, but Q4 and 2012 earnings could start to surprise."

"Takeover appeal? We think the growing number of buildings connected to CCOI’s fiber network represent an attractive asset to other carriers. Any competitor would benefit from taking Cogent’s aggressive pricing policy out of the market, and could possibly up-sell customers on IP-VPN, voice or other more complex data services. We do not expect an acquisition of CCOI in the near term, but we think $18 represents its current takeover potential."

For more ratings news on Cogent Communications click here and for the rating history of Cogent Communications click here.

Shares of Cogent Communications closed at $14.33 yesterday.

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