Analyst: Multiple Expansion Less Likely For GTT Communications

Telecommunications and internet services provider GTT Communications Inc GTT is likely to see only modest potential upside near term from multiple expansion, according to KeyBanc Capital Markets.

The Analyst

KeyBanc analyst Brandon Nispel downgraded shares of GTT Communications from Overweight to Sector Weight.

The Thesis

GTT Communications shares now trade roughly in line with its peers on an EV/EBITDA basis and unlevered basis, Nispel said in a note. With the company's lower organic growth and lower EBITDA margins, the analyst said the valuation multiple now fully reflects its ability to create value through acquisitions.

Multiple expansion looks less likely in 2018, Nispel said.

That said, he would be more constructive on the stock on a pullback or clinching of a large deal. This is based on the analyst's view the company has a long-term opportunity to consolidate a fragmented industry, and integration of acquisitions has been strong.

"We believe GTT can achieve its next financial goal of $2.0B in revenue and $550M in adjusted EBITDA in the next four years, but likely cannot do so without several medium-sized acquisitions ($200M-$400M revenue) or 1-2 large acquisitions ($400M-$600M revenue)," Nispel said.

As such, KeyBanc adjusted its estimates for the company, and established a fair value of $45.

Price Action

Over last year, GTT Communications shares have gained more than 50 percent.

At time of writing, shares were receding 2.99 percent to $42.20.

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