Shares of Zayo Group Retake $27.90 Level As 1 Analyst Suggests Price Represents 'Attractive Entry Point'

Shares of Zayo Group Holdings Inc ZAYO were trading up almost 2 percent on Monday afternoon, just shy of $28. This upward movement followed a Buy rating issued by Analyst James Moorman at D.A. Davidson & Co., who said that the share price "represents an attractive entry point into a company that is benefiting from the bandwidth explosion."

The analyst and his team believe that the stock price is down due to second-quarter bookings concerns and the secondary offering of 21.85 million shares at $27.35 (this included 4 million primary shares and 17.85 million shares from selling shareholders).

The Report

The report explains that while bookings were light in the second quarter, the firm sees this as "a function of seasonality and the timing of some large deals." They expect the third quarter to be very strong in terms of bookings, possibly a record quarter.

Related Link: JPMorgan Initiates Zayo Group Holdings At Overweight

Moreover, the recent Latisys deal helped create a new segment, "Zayo Cloud Services." Additionally, they expect the deal to help generate new revenue opportunities. Although shares are trading at 11.5x D.A. Davison's fiscal 2016 estimate, at a premium to Cogent Communications Holdings Inc CCOI and Level 3 Communications, Inc. LVLT, they believe "this is deserved due to the nature of the dark fiber business with high margins and long-term contracts with rent escalators."

Factors To Be Aware Of

The report points out a few other factors to take into account. Namely:

• "5 percent shareholders represent majority of secondary. Early investing funds with 5 percent or greater ownership accounted for roughly 12 million of the approximately 18 million shares from selling shareholders. This transaction helped reduce the number of shares that are locked up until October 22, 2015."
• A recently announced agreement with Interxion Holdings will help the company expand in Ireland and the rest of Europe.
• Several management changes, which took place at the time of the Latisys deal, could spur growth. The analysts think the reshuffle could "reinvigorate growth in Lit Services in areas such as Ethernet and IP."

Given this situation, the firm reiterates a Buy rating and a $36 price target on the stock.