GTT Communications's M&A Integration Beset By 'Miscues,' KeyBanc Says In Downgrade

GTT Communications Inc GTT is facing speedbumps in its journey toward integration of the Interoute acquisition and capitalizing on organic growth opportunities, according to KeyBanc Capital Markets.

The Analyst

Brandon Nispel downgraded GTT Communications from Overweight to Sector Weight. 

The Thesis

While GTT Communications was expected to quickly integrate the Interoute acquisition and achieve synergies of at least $100 million, there have been “several operation miscues” in this process, Nispel said in the Monday downgrade note. (See his track record here.) 

The company was expected to continue focusing on M&A in a bid to consolidate a $100-billion market, the analyst said, adding that GTT has not made an acquisition since the fourth quarter of 2018.

The successful integration of the Interoute acquisition would have allowed GTT Communications to increase its salesforce and productivity to drive organic growth through up-selling and cross-selling efforts, Nispel said.  

The company's organic growth continues to be disappointing, he said. 

While investors have been focusing on organic growth, KeyBanc’s jobs data suggests continued softness in hiring activity, indicating that the company’s rep growth will at best be in-line with expectations, the analyst said. 

KeyBanc reduced its revenue estimates for 2019 and 2020 from $1.804 billion to $1.791 billion and from $1.845 billion to $1.786 billion, respectively, to reflect lower productivity expectations.

Price Action

GTT Communications shares were down 4.26% at $18 at the time of publication Tuesday. 

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