Why Is Cogent (CCOI) Down 0.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Cogent Communications (CCOI). Shares have lost about 0.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Cogent due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Cogent Q1 Earnings Miss Estimates, Revenues Up Y/Y

Cogent reported tepid first-quarter 2020 financial results, with the top and the bottom line missing the Zacks Consensus Estimate.

Net Income

Net income in the March quarter remained relatively flat at $9.2 million or 20 cents per share as top-line growth was offset by higher operating expenses. The bottom line lagged the consensus estimate by 2 cents.

Revenues

Quarterly service revenues were $140.9 million compared with $134.1 million in the year-ago quarter. On a constant-currency basis, the 5.1% increase was backed by higher on-net and off-net revenues. However, the top line missed the consensus estimate of $142 million.

On-net revenues increased 6.5% to $103.5 million from $97.2 million in the year-ago quarter. The increase was primarily driven by 5.8% growth in on-net customer connections.

Off-net revenues inched up 1.3% to $37.3 million from $36.8 million in the year-ago quarter, driven by 5.2% rise in off-net customer connections.

Other Details

Total operating expenses were $115.1 million compared with $110.3 million in the prior-year quarter led by higher network operations and SG&A expenses. Operating income was $25.9 million, up from $24.4 million. Adjusted EBITDA totaled $50.4 million compared with $48.1 million in the year-ago quarter for respective margins of 35.8% and 35.9%.

During first-quarter 2020, the company registered 87,213 customer connections compared with 82,522 in the year-ago quarter. The year-over-year increase of 5.7% was backed by improvement in both on-net and off-net customer connection tallies.

Despite the global pandemic, Cogent hiked its dividend for the 31st consecutive quarter, which indicates its robust cash flow position. The company increased its quarterly dividend by 2 cents per share to 68 cents for second-quarter 2020.

Cash Flow & Liquidity

During the first three months of 2020, Cogent generated $28.5 million of net cash from operating activities compared with $28.6 million in the year-ago quarter. As of Mar 31, 2020, the company had $375.1 million in cash and equivalents with total current liabilities of $90.1 million.

Moving Ahead

Thanks to the current macroeconomic challenges related to the COVID-19 pandemic, Cogent has stated that it is likely to encounter financial difficulties in the near term coupled with a significant downward trend in customer orders, supply chain disruptions, lower corporate installs and reduced customer connections. Backed by the current work-from-home trend amid COVID-19 induced lockdown, the company witnessed a positive impact on net-centric revenues in the reported quarter. Nevertheless, the company remains pessimistic that the global economic disturbance and government restrictions are likely to cast a negative impact on its business operations in the long run.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a flat path over the past two months. The consensus estimate has shifted -10.42% due to these changes.

VGM Scores

Currently, Cogent has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Cogent has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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