- Jefferies is upgrading Cogent (NASDAQ:COGT) to Buy from Underperform as they believe Q2 results represent the bottom. Revenue recognition on large existing contracts provides a high degree of visibility into at least a few quarters of strong sequential growth. In addition, the award activity over the next year should improve markedly from the previous year.
Cogent missed firm estimates by a significant margin, reporting revenue and operating EPS of $13.2MM and $0.05, respectively, vs. near consensus estimates of $27.2MM and $0.10. Shifts in revenue to the second half of 2006 due to revenue recognition were the primary reason for the shortfall.
There were positives on the call. Firm learned that the company has won over $10MM of additional smaller contracts, of which some can likely be recognized as revenue in 2006. Management disclosed their expectation of another Venezuela contract in Q4 associated with the Presidential election. Cogent also disclosed that the delays in revenue recognition associated with DHS were not due to any technical problems with the system and that a portion of the revenue from these shipments should be recognized in 2H06. Finally, management offered greater visibility by supplying EPS guidance for the year of $0.39- 0.42, excluding FAS 123 and legal expenses of approximately $0.06 by our estimates.
Cogent missed firm estimates by a significant margin, reporting revenue and operating EPS of $13.2MM and $0.05, respectively, vs. near consensus estimates of $27.2MM and $0.10. Shifts in revenue to the second half of 2006 due to revenue recognition were the primary reason for the shortfall.
There were positives on the call. Firm learned that the company has won over $10MM of additional smaller contracts, of which some can likely be recognized as revenue in 2006. Management disclosed their expectation of another Venezuela contract in Q4 associated with the Presidential election. Cogent also disclosed that the delays in revenue recognition associated with DHS were not due to any technical problems with the system and that a portion of the revenue from these shipments should be recognized in 2H06. Finally, management offered greater visibility by supplying EPS guidance for the year of $0.39- 0.42, excluding FAS 123 and legal expenses of approximately $0.06 by our estimates.
Notes COGT likely opens lower than its close due to Q2 results. Based on the $4 of cash per share and C07 operating EPS estimate of $0.46, which excludes interest income, the stock is trading below 20x if COGT opens below $13. While the perceived risk is quite high at the moment, they believe buying COGT under 20x C07 operating EPS estimate is an excellent value. Firm's price tgt in $15.
Notablecalls: As you all know I don't like highlighting upgrades/downgrades on this page but I think this one bears watching. First of all, Jeffco has been dead right on COGT with their Underperform rating. Secondly, COGT's biggest chearleader Morgan Stanley is downgrading the shares today. If that's not capitulation then what is? This may very well be a bottom for COGT.
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