Huge deals in the bandwidth arena that have hit the tape recently are making everybody on Wall Street who covers the Internet take note. Historically, buyers of bandwidth infrastructure services have been described as either enterprise or carrier (wholesale) customers. The landscape is changing, and changing big time. Over the past 10 years a new group of buyers has emerged that the Cowen analysts refer to as Internet customers. This includes mega names like Facebook Inc. (NASDAQ: FB), Amazon.com Inc. (NASDAQ: AMZN) and many more.
In a new report, the telecom service analysts at Cowen point out that the huge deals between Comcast Inc. (NASDAQ: CMCSA) and Time Warner Inc. (NYSE: TWX) and Comcast and Netflix Inc. (NASDAQ: NFLX) have changed the game totally. In other words, big companies are staking out their bandwidth needs, and they are moving ahead fast. The Cowen team highlighted three stocks likely to benefit in this huge infrastructure build-out play.
Cogent Communications Group Inc. (NASDAQ: CCOI) is a key provider of Netflix’s Tier 1 services and looks to immediately be a winner. Internet service provider (ISPs) like Comcast will allow transit providers like Cogent to connect to their network, for free, in what is called settlement-free peering. Once the transit provider sends more traffic to the ISP than it is allowed to, per the peering policy, the transit provider pays the ISP for more capacity to get additional traffic into its network. This can result in a tremendous increase in overall business. Investors are paid a 1.7% dividend. The Cowen price target for the stock is $48. The Thomson/First Call estimate is posted at $39.56. Shares closed Monday at $37.89.
Level 3 Communications Inc. (NASDAQ: LVLT) provides local, national and global communications services to enterprise, government and carrier customers. Level 3′s comprehensive portfolio of secure, managed solutions includes fiber and infrastructure solutions; IP-based voice and data communications; wide-area Ethernet services; video and content distribution; data center and cloud-based solutions. Level 3 serves customers in more than 500 markets in over 60 countries over a global services platform anchored by owned fiber networks on three continents and connected by extensive undersea facilities. The Cowen price target for the stock is $39, and the consensus is at $36.73. Level 3 closed Monday at $36.52.
Lumos Networks Corp. (NASDAQ: LMOS) is a fiber-based service provider in the Mid-Atlantic region serving carrier, business and residential customers over a dense fiber network offering data, voice and IP services. The company recently increased its fiber route miles from 5,800 to 7,414 miles. The majority of this increase in route miles is related to organic fiber expansion in key Mid-Atlantic markets, with a primary focus on expanding the company’s Metro footprint. A smaller component of this increase is related to the completion of an initiative to convert the company’s fiber records into a new centralized fiber management program. Cowen has an $18.50 price target, and the consensus target is higher at $20.13. Lumos closed Monday at $14.52.
The demand for fiber is only going to increase. With Google Inc. (NASDAQ: GOOG) making a huge push into programming and the ISP world with Google Fiber, plus major carriers increasing Internet speeds, the need for speed will only increase. Cowen’s top stocks to buy should be right there when more orders continue to roll in.