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4 Reasons Why BofA Is Bullish On Zayo Group

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4 Reasons Why BofA Is Bullish On Zayo Group

Communication infrastructure services provider Zayo Group Holdings Inc (NYSE: ZAYO) earned a bullish initiation at Bank of America Merrill Lynch, with the firm predicating its rating on four factors.

The Analyst

Analyst Joshua Frantz initiated coverage of the shares of Zayo with a Buy rating and $43 price target.

The Thesis

BofA's bullish stance is underpinned by four factors, Frantz said in a Friday note: 

  • Broadband demand is on the rise as end users consume more data through high-bandwidth applications, and connectivity needs are increasing thanks to cloud adoption and 5G, the analyst said. 
  • The shifting market structure is an opportunity as well as a risk due to the highly concentrated nature of the enterprise telecommunications services market.
  • BofA expects a recent sales force reorganization to help lower Zayo's churn and increase sales.
  • Incremental M&A could create "a deep asset moat."

The merger of Centurylink Inc (NYSE: CTL) and Level 3 Communications, two of the four largest companies in the sector, is positive for Zayo due to the improvement in the pricing environment and market share opportunities. The company could be stymied by the formidable competitive threat posed by Centurylink and potential churn headwinds, Frantz said. 

BofA also noted Zayo's plan to convert to a REIT, which Frantz said allow it to reduce cash taxes and potentially attract a new investor base.

The Price Action

Zayo shares have lost about 7.5 percent year-to-date. 

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Latest Ratings for ZAYO

DateFirmActionFromTo
May 2019DowngradesOutperformMarket Perform
May 2019DowngradesBuyNeutral
May 2019DowngradesOutperformMarket Perform

View More Analyst Ratings for ZAYO
View the Latest Analyst Ratings

Posted-In: Bank of America Merrill Lynch Joshua FrantzAnalyst Color Price Target Initiation Analyst Ratings Best of Benzinga

 

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