Deutsche Bank Steps To The Sidelines On Cogent Communications

After rising 17 percent over the past year versus a 12 percent gain in the S&P 500 index, Deutsche Bank says now is the time to no longer be buyers of Cogent Communications Holdings Inc (NASDAQ: CCOI) stock.

The Analyst

Deutsche Bank's Matthew Niknam downgraded Cogent Communications from Buy to Hold with a price target lifted from $50 to $41.

The Thesis

A downgrade is strictly due to the stock's outperformance versus the broader index and nothing to do with the company's outlook, Niknam said in a note. Specifically, the two positive attributes to support the prior bullish stance remain unchanged: expectations for above average organic revenue and free cash flow growth, and the potential for accelerating shareholder returns.

Cogent's first-quarter earnings report came in relatively in-line with expectations and "do not detract" from the longer-term story as the analyst's revenue and adjusted EBITDA estimates were lifted by 1 to 3 percent.

The communication company's stock is now trading at a 14.8x multiple on 2018E adjusted EBITDA and 13.5x on 2019 estimates, however, both of which stand above the historical average of 12.6x and 13.7x average over the past five years, the analyst wrote.

Price Action

Shares of Cogent Communications were trading lower by 1.7 percent Friday at $48.25.

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