A month has gone by since the last earnings report for Zayo Group (ZAYO - Free Report) . Shares have lost about 0.6% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Zayo Group due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Zayo Misses Q3 Earnings Estimates, Beats Revenues
Zayo reported mixed third-quarter fiscal 2019 results, wherein the bottom line increased year over year but missed the Zacks Consensus Estimate.
Net income for the quarter was $34.7 million or 15 cents per share compared with $23.5 million or 9 cents per share in the year-ago quarter. The year-over-year increase in earnings, despite lower revenues, was attributable to lower operating expenses. The bottom line, however, missed the consensus estimate by 3 cents.
Revenues decreased to $647.2 million from $649 million, however surpassed the Zacks Consensus Estimate of $640 million. While revenues from the Communications Infrastructure segments totaled $555.2 million, the same from the Allstream segment were $92 million.
Total operating expenses decreased to $515.6 million year over year from $543.5 million, primarily due to lower depreciation and amortization charges. Operating income improved to $131.6 million from $105.5 million in the prior-year quarter owing to lower operating expenses. Adjusted EBITDA was $321.3 million compared with $319.4 million in the year-ago quarter.
Concurrent with the quarterly results, Zayo announced that it has inked a merger agreement to be acquired by affiliates of Digital Colony Partners and the EQT Infrastructure IV fund. Upon close, Zayo will operate as a privately-held company. The Zayo team would continue to execute the company’s strategy and remain headquartered in Boulder, CO. The closing of the deal is subject to customary conditions, including regulatory clearance and Zayo’s shareholder approvals.
Per the deal, which was unanimously approved by Zayo’s board, shareholders will receive $35.00 in cash per share of the company’s stock, in a transaction valued at $14.3 billion, including the assumption of $5.9 billion of Zayo’s net debt obligations. Notably, the offer price represents a 32% premium to the volume-weighted price average of the last six months of $26.44. The transaction is expected to close in the first half of calendar year 2020.
Cash Flow and Liquidity
Net cash provided by operating activities for the first nine months of fiscal 2019 was $726 million compared with $719.5 million in the year-ago period. As of Mar 31, 2019, Zayo’s cash and cash equivalents were $179.7 million, with long-term debt of $5,864.1 million. As of the same date, the company had $271.5 million available under its revolving credit facility.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -17.18% due to these changes.
At this time, Zayo Group has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Zayo Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.