A month has gone by since the last earnings report for Cogent Communications (CCOI). Shares have added about 14.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Cogent due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Cogent Q4 Earnings Beat Estimates, Revenues Rise Y/Y
Cogent reported decent fourth-quarter 2020 results, wherein the bottom line beat the Zacks Consensus Estimate.
Bottom Line
Net loss in the December quarter was $6.6 million or loss of 14 cents per share against net income of $7.5 million or 16 cents per share in the prior-year quarter. The deterioration was the result of lower operating income, higher interest expense and foreign exchange losses of $19.2 million on Cogent’s 2024 euro notes.
In 2020, net income was $6.2 million or 13 cents per share compared with $37.5 million or 81 cents per share in 2019.
Quarterly adjusted earnings came in at 19 cents per share, which beat the Zacks Consensus Estimate by a penny.
Top Line
Quarterly service revenues increased 2.6% year over year to $143.9 million, primarily driven by higher on-net revenues. The top line matched the consensus estimate.
On-net revenues grew 4.3% year over year to $107.1 million, driven by growth in on-net customer connections. On-net service is provided to customers located in buildings that are physically connected to Cogent’s network by its facilities. The number of on-net buildings increased by 113 from Dec 31, 2019 to 2,914 as of Dec 31, 2020.
Off-net revenues declined 2.2% to $36.7 million. Off-net customers are located in buildings directly connected to Cogent’s network using other carriers’ facilities.
In 2020, service revenues increased 4% year over year to $568.1 million.
Other Quarterly Details
Total operating expenses were $116.5 million compared with $112.5 million in the prior-year quarter. Operating income was $27.4 million, down from $28 million. EBITDA totaled $55.7 million compared with $52.7 million in the year-ago quarter with respective margins being 38.7% and 37.6%.
Total customer connections grew 3.5% from Dec 31, 2019 to 89,600 as of Dec 31, 2020.
Cogent increased its dividend for the 34th consecutive quarter. It increased its quarterly dividend by 2.5 cents per share to 75.5 cents for the first quarter of 2021. The amount is payable on Mar 26 to shareholders on record as of Mar 12.
Cash Flow & Liquidity
In 2020, Cogent generated $140.3 million of net cash from operations compared with $148.8 million in 2019.
As of Dec 31, 2020, the company had $371.3 million in cash and cash equivalents with $111.3 million of operating lease liabilities compared with a respective $399.4 million and $86.7 million a year ago.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -20.67% due to these changes.
VGM Scores
Currently, Cogent has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It’s no surprise Cogent has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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