Zayo Group Trading At Discount To The Sum Of Its Parts, Poised To Benefit From Growth In Bandwidth Demand

Communications infrastructure provider Zayo Group Holdings Inc ZAYO is undervalued, according to Wells Fargo, as the whole business is trading at less than the sum of its parts.

“Zayo is well positioned to benefit from growth in bandwidth demand with its extensive fiber network and focus on high-margin, long-term dark fiber contracts, in our view,” said Wells Fargo in an analyst note on Wednesday.

Recent Developments Position Company For Growth

The company has recently reorganized its business into five primary operating segments, a move that provides more transparency into the company’s performance and valuation, according to the bank.

Using conservative valuation multiples, Wells Fargo arrived at a fundamental equity share price of $38, representing a 17 percent upside to current share levels. Analysts are particularly bullish about the company's future prospects, with “recurring revenues backed by long-term contracts, limited customer churn, annual rent escalators and lease-up opportunity.”

The company also expects its Fiber solutions segment — particularly its Dark Fiber product — to become its biggest value driver and is anticipating this segment to make up 47 percent of its total EBITDA by December 2017.

Wells Fargo maintains an Outperform rating on the stock.

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NetApp's Recent Momentum Should Continue; JMP Upgrades _______ Image Credit: By Dark fiber colo (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons