Guggenheim's Takeaways From Meeting With Cogent Communications' CEO

The market for telecom services remains highly competitive, with pressure on pricing and a continued shift from legacy to new technologies.

Although Cogent Communications Holdings Inc CCOI seems well-positioned, there is limited upside to the stock's valuation, according to Guggenheim.

The Analyst

Guggenheim’s Mike McCormack maintained a Neutral rating on Cogent Communications following a meeting Monday with CEO Dave Schaeffer.

The Thesis

While the telecom landscape remains competitive, with a decline in the overall enterprise market, Cogent Communications is gaining share in wholesale.

Growth at NetCentric, which constitutes roughly one-third of Cogent Communications’ business, has been decelerating, McCormack said in a Tuesday note.

Schaeffer mentioned that the market seemed poised for long-term growth, the analyst said. While the segment may not steadily return to stronger growth, this should still occur in the next several quarters, he said. 

The enterprise market opportunity is continuing to decline due to technological shifts, McCormack said, adding that growth in SD-WAN continues to benefit Cogent.

Cogent highlighted that SD-WAN is cheaper and easier to use than multiprotocol label switching, or MPLS, and that equipment companies were driving the move toward SD-WAN, according to Guggenheim. 

The CEO said the areas where a 5G fixed wireless product could compete with fixed wireline may find cost barriers to deployment, McCormack said. The cost of delivering on wireline is lower than wireless, he said. 

Price Action

Cogent Communications shares were down 0.29 percent at $48.59 at the time of publication Tuesday. 

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Photo courtesy of Cogent.