Monday, Friedman, Billings, Ramsey downgraded Cogent Communications Group Inc. (CCOI) shares to Underperform from Market Perform and lowered its price target to $4 from $6. The brokerage widened its 2009 loss per share estimate to $0.69 from $0.31, while maintaining its 2010 loss estimate of $0.58.
Analyst David Dixon noted that Cogent, on May 8, reported first quarter results that were weaker than expectations. While adjusted EBITDA were better than expected, revenue was significantly weaker than expected, with sequential revenue almost flat.
While management reiterated full-year guidance, hitting that guidance may prove to be a challenge, in the analyst's view, given intensifying competitive pricing pressure. Until the company either lowers guidance to a level the Street views is achievable, or posts quarterly results that provide increased confidence in the company's ability to reverse current momentum, the specter of a potential guide-down is likely to represent an overhang for CCOI shares.
While the margin performance during the quarter was encouraging, and management indicated that network traffic was up 21% sequentially, the analyst expects the repricing impact to continue to weigh on results in 2009.
Based on revised estimates, which incorporate a continuation of current trends, the analyst has lowered price target to $4.00 and his rating to Underperform. The analyst's revised price target of $4.00 is based on the average of: a nine-year DCF analysis, including a 4.0x terminal EBITDA multiple; a 4.0x one-year- forward EV/EBITDA multiple; and 10% one-year-forward FCF yield.
Currently, CCOI is down $0.57 or 7.74% and trading at $6.79.
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