Cogent has received a favorable rating from Moody’s Investors Service, reflecting the Ethernet provider’s performance, growth, and favorable results at a time when business and wholesale service trends have been challenged by pricing and slower spending cycles.
“Moody's believes Cogent's business has demonstrated greater leverage tolerance and think Cogent can achieve a higher rating if its capital allocation framework remains balanced and predictable,” Moody’s said in a research note.
Additionally, Moody’s affirmed Cogent's B3 corporate family rating (CFR), B3-PD Probability of Default Rating (PDR), and SGL-1 Speculative Grade Liquidity (SGL) Rating. The financial firm said that Cogent's B3 CFR is supported by a strong liquidity profile and Moody's expectation for low double-digit revenue growth and modest margin expansion.
A good place to look at how Cogent is performing is its second-quarter 2017 results. While seeing some revenue challenges in its wholesale Net Centric business, Cogent saw decent gains in its on-net fiber business services during the period.
The service provider reported that on-net revenue was $85.6 million, up 7.6% year over year over $79.5 million in the second quarter of 2016. On-net service is provided to customers located in buildings that are physically connected to Cogent's network by Cogent facilities.
But what could also position Cogent for further growth is its enterprise customers’ transition to new technologies, including SD-WAN and VPLS. These technology trends tie in well with Cogent’s focus on selling large capacity pipes.
“Technology trends are favorably aligned with Cogent's architecture, as enterprise networking is evolving to rely more heavily upon software in the core and plain-vanilla Internet access,” Moody’s said. “Older, more complex network IT architectures are becoming obsolete in favor of low cost software defined IP networks.
Moody’s added that “this trend benefits Cogent, and Moody's anticipates Cogent to experience continued strong growth.”
Dave Schaeffer, CEO of Cogent, told investors during its second-quarter earnings call that it is in a good position to take advantage of its customers’ migration to SD-WAN because it does not have an existing MPLS base to protect. Instead, business customers can run their SD-WAN applications over Cogent’s high speed Ethernet pipes at their locations.
Schaeffer said that the incumbents are “getting a second blow to their businesses as MPLS revenue migrates to over-the-top revenue, which is where Cogent is uniquely positioned to take advantage of.”