Cogent Earnings: We Anticipated These Results, but Postacquisition Margins Better Than We Expected

The biggest source of volatility in Cogent’s second-quarter financial results was another reversal in how the firm will recognize the $700 million it is receiving from T-Mobile as part of Cogent’s Sprint wireline acquisition, which closed in May and led to a big noncash gain in the quarter while reducing the revenue we expected. Cogent’s legacy corporate business continues to struggle as corporate office attendance in the U.S. has yet to recover, and the legacy netcentric business remains strong. However, the new baseline for EBITDA margins appears to be higher than we anticipated after Cogent acquired the cash-burning Sprint wireline business. After adjusting our margin projections, we’re raising our fair value estimate to $70 from $65.