Telecom & Wireless

3 Top Telecom Services Stocks to Buy on Surging Demand

Zayo Group

This company had a well-received initial public offering 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.

Several Wall Street firms loves the strong defensive business model and cite the company’s solid growth trajectory, the highly recurring revenue model, high incremental EBITDA margins, management’s experience and ability to drive high returns on invested capital. Like others in the sector, Zayo’s favorable multiyear secular tailwinds, as well as the increased probability of a real estate investment trust structure over the long term, make it a solid buy for investors now. The Cowen team notes that the company will report earnings on September 18, and they expect revenue and EBITDA to come in above estimates.

The Cowen price target is $33, above the consensus target of $30.80. The stock closed on Wednesday at $28.36.

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Digital Realty Trust

This stock may be a solid play for more conservative accounts. Digital Realty Trust Inc. (NYSE: DLR) supports the data center and colocation strategies of more than 600 firms across its secure, network-rich portfolio of data centers located throughout North America, Europe, Asia and Australia. Digital Realty’s clients include domestic and international companies of all sizes, ranging from financial services, cloud and information technology services to manufacturing, energy, gaming, life sciences and consumer products. The company rates high with portfolio managers as a large part of the market cap of the company is in institutional hands.

The company reported strong second-quarter numbers that were ahead of expectations. It also bought Telx, a national provider of data center colocation, interconnection and cloud enablement solutions back in July in a $1.89 billion deal, and the acquisition should close this month. The combination is expected to double Digital Realty’s footprint in the rapidly growing colocation business, as well as provide Digital Realty customers access to a leading interconnection platform. The Cowen team sees the deal as underappreciated and a very strong addition.

Digital Realty investors are paid an outstanding 5.47% distribution. The Cowen price target is $73, and the consensus target is $70.93. The shares closed Wednesday at $61.69.

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Telecom services demand continues to grow at breakneck speeds. Adding any of these stocks to portfolios with no allocation or small allocations to the sector makes good sense. Scale buying shares is a good idea with the market still very volatile.

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