DA Davidson Lowers PT on Cogent Communications to $18

DA Davidson has published a research report on Cogent Communications Group

and has lowered the price target from $20 to $18 after one of the company's largest companies, Megaupload, was raided and shut down yesterday by the FBI. In the report, DA Davidson writes, "According to CCOI management, the company does not have any concentration of other customers streaming pirated material. Rapidshare, another CCOI customer, is a file-sharing service for music more than movies,so the bandwidth intensity would not be as high. CCOI said it bills less than $1 million per quarter. If Megaupload is shut down permanently, we think that it and similar customers could cause a $13-$15 million drop in CCOI's 2012 revenues. With incremental EBITDA margins at 90%-95%, the hit to EBITDA wouldbe $12-1$3 million. There are no cost offsets to the loss of revenues. Our revised estimates are detailed below. We are trimming our revenues by $14.8 million, our EBITDA by about $13 million, and our EPS by $0.27 per share. On the EPS impact, CCOI has a$47 million share-buyback program authorized, but it is currently in a black-out period. If the stock stays depressed after they announce Q4 results, then we would expect CCOI to use its buy back authorization, and the EPS impact could be reduced due to fewershares outstanding." DA Davidson maintains its Buy rating on Cogent Communications, which closed today at $15.30.