The company’s forecast for the third quarter, at as much as $47.5 million in sales and $12.5 million in earnings before interest, taxes, depreciation and amortization, was also below expectations.
The problem is the company’s revenue per subscriber is falling more quickly than expected, down 5%, an acceleration from the first quarter’s .5%, according to Bear Stearns analyst Scott Goldman. But Goldman emphasized the company’s big jump in subscribers, noting “Cogent added 1,208 on-net connections, a 53.5% increase from the 787 added in 1Q07 and well above our estimate of 847” and “we continue to believe the company’s operating leverage will help drive significant improvements in profitability going forward.” And so Goldman is keeping to his Outperform rating on the stock and his $43 price target, even though “We expect 3Q07 guidance could also disappoint investors, though Cogent’s full year outlook was unchanged.” Meantime, CIBC World Markets’ Tim Horan, with a mere Market Perform rating on the stock, and no price target, says: “We expect the stock to be under pressure today” because “at approx. 19x ‘08E EBITDA, Cogent looks fairly priced given its growth profile.” Horan is nonetheless willing to continue to believe there may be good news down the road: "The $200 million 1% convertible issue was finalized, and CCOI now has a $183 million cash balance–giving this very smart management team substantial ammunition for network expansions and an accelerated rate of building adds, driving positive investor sentiment."
Well, I would note that at $23.20 Tuesday, Cogent stock is actually only about 15.5x that ‘08 EBITDA estimate, so maybe we’ll see some Buy recommendations in short order…
CCOI 1-yr chart: