Telecom & Wireless

Leading Analyst Has 3 Top Picks in Telecom and Data Services

Lee Jackson

If you wonder if there is money to be made in telecom and data services, all you have to do is look at your smartphone. The demand is insatiable, and going up all the time. While margins can get cut as carriers are price competitive, the ability to generate cash flow is strong. In a new report, the Cowen analyst regarded as one of the best on Wall Street in the sector is out with his new top three picks.

Cowen’s Colby Synesael has made some spot-on calls in his time on Wall Street, and he shuffles the deck a little bit as he comes out with his new three top picks in the sector. All make good sense for more aggressive growth accounts, and all are rated Outperform at Cowen.

Level 3 Communications

This top company provides local, national and global communications services to enterprise, government and carrier customers. Level 3 Communications Inc.’s (NYSE: LVLT) 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, and data center and cloud-based solutions. Level 3 serves customers in over 500 markets in more than 60 countries over a global services platform anchored by owned fiber networks on three continents and connected by extensive undersea facilities.

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The Cowen team has been good at spotting past trends from the company, and previously pointed to the TW Telecom opportunities, among others, as a real positive going forward, which they continue to feel is a big plus in the company’s favor. Level 3 reported first-quarter results that were in line with Wall Street expectations despite currency headwinds, and management reiterated year-over-year growth expectations.

The analyst also believes mergers and acquisitions could be in the company’s future, as well as a stock buyback program. It is important to note that Cowen sees this stock as a core long-term holding.

The Cowen price objective for the stock is $65. The Thomson/First Call consensus price target is $61. The stock closed most recently at $55.47 a share.

T-Mobile

This stock remains a top three pick and is a carrier that makes the grade. T-Mobile US Inc. (NYSE: TMUS) is a stock where rumors continue to fly around Wall Street despite the fact that all the deals that were in play in 2014 are off the table. Many Wall Street analysts believe that the market is improperly discounting the company’s subscriber momentum and growing free cash flow. With the stock back to the highs printed last summer, investors are not picking up the deal they could have had back in December.

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The Cowen report points out that heavy promotion paid solid dividends as the company reported very solid user additions and management raised net adds guidance while maintaining EBITDA guidance. They also think that the company still remains a buyout candidate.

The Cowen price target for the stock is posted at $43, and the consensus target is $38.39. Shares closed Wednesday at $35.21.

Zayo Group

This company jumps into the top three picks and had a well-received IPO last fall. Zayo Group Holdings Inc. (NYSE: ZAYO) provides comprehensive bandwidth infrastructure services in over 300 markets throughout the United States and Europe. Zayo delivers a suite of dark fiber, mobile infrastructure and cloud and connectivity services to wireline and wireless customers, data centers, Internet content providers, high-bandwidth enterprises and government agencies across its robust 82,000 route mile network. The company also offers 45 carrier-neutral data center facilities across the United States and France. Zayo was the first to offer bandwidth shopping and buying in under two minutes through Tranzact.

That posted solid earnings recently but sold off when the management put out commentary on bookings and mergers and acquisitions that seem to confuse some of the analysts following the stock. The Cowen team was not shaken and sees bookings continuing to grow at a solid clip.

The Cowen price target is set at $33, and the consensus is lower at $31.06. Shares closed Wednesday at $26.11 apiece.

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The telecom and data services sector is a very solid long-term choice for aggressive growth investors. All three of these top picks make good sense for patient investors.