Cogent (CCOI) Up 3.2% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Cogent Communications (CCOI). Shares have added about 3.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Cogent due for a pullback? 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 Q4 Earnings Beat Estimates, Revenues Rise Y/Y

Cogent reported healthy fourth-quarter 2019 financial results, wherein both the top and bottom lines surpassed the Zacks Consensus Estimate.

Net Income

Net income in the December quarter was $7.5 million or 16 cents per share compared with $7.1 million or 16 cents per share in the prior-year quarter. The improvement was primarily attributable to top-line growth. Full-year 2019 net income came in at $37.5 million or 81 cents per share compared with $28.7 million or 63 cents per share in 2018.

Fourth-quarter adjusted earnings per share were 25 cents compared with 16 cents in the year-earlier quarter. The bottom line beat the consensus estimate by 4 cents.

Revenues

Quarterly service revenues were $140.3 million compared with $132 million in the year-ago quarter. On a constant currency basis, the 6.2% increase was backed by higher on-net and off-net revenues. The top line surpassed the consensus estimate of $138 million. Full-year 2019 revenues rose 5% to $546.2 million from $520.2 million on the back of higher on-net and off-net revenues. However, foreign exchange woes negatively impacted full-year service revenues by $5.3 million.

On-net revenues jumped 7.7% to $102.7 million from $95.4 million in the year-ago quarter. The increase was primarily driven by healthy growth in on-net customer connections.

Off-net revenues increased 2.5% to $37.5 million from $36.6 million in the year-ago quarter, driven by a rise in off-net customer connections.

Other Details

Total operating expenses were $112.5 million compared with $109.8 million in the prior-year quarter led by higher network operations and SG&A expenses. Operating income was $28 million, up from $22.3 million. Adjusted EBITDA totaled $53 million compared with $47.7 million a year ago for respective margins of 37.8% and 36.1%.

During fourth-quarter 2019, the company registered 86,539 customer connections compared with 80,106 in the year-ago quarter. The year-over-year increase of 8% was backed by an improvement in both on-net and off-net customer connection tallies.

Cogent hiked its dividend for the 30th consecutive quarter, which represented its robust cash flow position. The company increased its quarterly dividend by 2 cents per share to 66 cents for first-quarter 2020.

Cash Flow & Liquidity

In 2019, Cogent generated $148.8 million of net cash from operating activities compared with $133.9 million in 2018. As of Dec 31, 2019, the company had $399.4 million in cash and equivalents with total current liabilities of $89.7 million compared with the respective tallies of $276.1 million and $75.3 million a year ago.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months.

VGM Scores

At this time, Cogent has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

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

Outlook

Cogent has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.