What Happened?
Shares of internet service provider Cogent Communications (NASDAQ: CCOI) fell 3.2% in the morning session after a downgrade by Citigroup to Neutral from Buy, citing risks of a future dividend cut. The bank slashed its price target on the shares to $33 from $67, a reduction of over 50%, and raised its risk rating on the stock to 'high-risk.' The downgrade stems from concerns about the company's high net debt and the significant risk of a 'substantial dividend cut' between 33% and 50% over the next one to two years. Citigroup noted that Cogent's recent underperformance in the second quarter highlights that future earnings growth is now more dependent on revenue growth rather than cost-cutting. This follows a recent trend of negative sentiment, with RBC Capital also downgrading the stock just days earlier after the company reported weak quarterly results that missed revenue and earnings estimates.
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What Is The Market Telling Us
Cogent’s shares are somewhat volatile and have had 12 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was about 22 hours ago when the stock gained 3.2% on the news that the company announced a $100 million increase to its stock buyback program and a hike in its quarterly dividend. The company's board approved the $100 million increase to its buyback program, a move often interpreted as a sign that management believes its shares are undervalued. This authorization allows the company to repurchase up to 4.6% of its stock. Additionally, Cogent increased its quarterly dividend to $1.015 per share, resulting in a notable annualized yield of 13.3%.
Cogent is down 57.3% since the beginning of the year, and at $32.92 per share, it is trading 61.4% below its 52-week high of $85.35 from November 2024. Investors who bought $1,000 worth of Cogent’s shares 5 years ago would now be looking at an investment worth $470.97.
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