Positive Sales Momentum, Probability Of REIT Conversion Fetch Zayo An Upgrade

Communication infrastructure services provider Zayo Group Holdings Inc ZAYO is likely to see a payoff soon from its sales force transition efforts, according to Raymond James. 

The Analyst

Analyst Frank Louthan upgraded shares of Zayo from Market Perform to Outperform with a $43 price target.

The Thesis

By the second half of 2018, Zayo is likely to see more consistent revenue acceleration — even excluding larger infrastructure results — after the sales force transition, Louthan said in a Friday note.

The company's recent trends are positive and warrant a closer look at patient accounts, the analyst said.

The sales force adjustments have increased Zayo's total addressable market by shifting the focus on more potential customers than in the past, he said. 

Reflecting an improving sales trend, the analyst said recent bookings remain comfortable at $8-8.5 in million monthly recurring revenue per quarter. 

Although Raymond James views Zayo's long-term path is to undergo a REIT conversion, it sees no near-term pressure on the company to convert. A REIT conversion would likely followa successful sale of Allstream assets, and an IRS private letter ruling. 

A conversion could lead to a multiple expansion to 12-14 times EBITDA, Louthan said. 

Raymond James left its estimates unchanged ahead of the third-quarter print on May 3, but noted the company pre-reported bookings ahead of expectations.

The Price Action

Zayo shares have added over 10 percent over the past year. The stock was up 0.89 percent at the time of publication Friday. 

Related Links:

Alphabet, IUSG, Zayo: 'Fast Money Halftime Report' Final Picks

Zayo Remains A 'Work In Progress,' Its Ability To Execute Still A Question Mark