Cogent Earnings: Slow Start to the Year, but Sprint Wireline Business Is the Bigger Wild Card

Narrow-moat Cogent had a disappointing first quarter, with its corporate business continuing to struggle and its netcentric business slowing a bit. Margins were also weak. However, the firm closed its deal with T-Mobile on May 1 to acquire Sprint's wireline business, and we think that business will have a much greater influence on Cogent's performance in the short and long term. If some of management's projections for stabilization and growth of the Sprint business come to fruition, Cogent has significant upside, but that business is currently burning cash and is in decline, so it carries risks even considering the $700 million T-Mobile is paying Cogent in the first couple of years to subsidize the business' losses. We don't anticipate major changes to our $65 fair value estimate after fully incorporating the Sprint transaction.