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Zayo Group (ZAYO) Down 0.2% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Zayo Group (ZAYO - Free Report) . Shares have lost about 0.2% in that time frame, underperforming 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 Beats on Q4 Earnings & Revenues, Updates Merger

Zayo reported better-than-expected fourth-quarter fiscal 2019 results, wherein both the bottom line and the top line surpassed the respective Zacks Consensus Estimate.

Net Income

Net income for the June quarter was $63 million or 26 cents per share, beating the Zacks Consensus Estimate by 11 cents. Despite year-over-year decline in revenues, the bottom line increased by $20.1 million mainly driven by higher income tax benefit. For fiscal 2019, net income was $150 million or 62 cents per share compared with $102.9 million or 41 cents per share in fiscal 2018.

Revenues

Quarterly revenues slipped to $650.6 million from $657.3 million year over year. The top line, however, surpassed the consensus estimate of $647 million. While revenues from the Zayo Networks segment totaled $485.4 million, the same from the Allstream segment were $88 million. Revenues from the zColo segment equaled $66.1 million. For fiscal 2019, revenues were $2,578 million compared with $2,602.5 million in fiscal 2018. 

Other Quarterly Details

Operating income improved to $121.2 million from $119 million reported in the prior-year quarter primarily due to lower operating expenses. Adjusted EBITDA was $321.2 million compared with $323.6 million in the year-ago quarter. Capital expenditures came in at $195.8 million.

Consolidated net installs, on a monthly recurring revenue (MRR) and monthly amortized revenue (MAR) basis, were $1.1 million, excluding the Allstream segment. This includes $1.6 million of net installs from the Zayo Networks segment and a negative $0.4 million from the zColo segment.

Merger Update

Zayo had previously announced that it has inked a merger agreement under which it is 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 its strategy and remain headquartered in Boulder, CO.

On Jul 26, 2019, the company held a special meeting of stockholders where they approved the deal. On Jul 31, 2019, Zayo announced the early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976. The closing of the merger remains subject to customary conditions, including certain regulatory approvals. The transaction is expected to close in the first half of calendar year 2020.

Cash Flow & Liquidity

During fiscal 2019, Zayo generated $951.1 million of net cash from operating activities compared with $971.2 million in fiscal 2018. For fiscal 2019, adjusted unlevered free cash flow was $537.2 million compared with $574.9 million in fiscal 2018.

As of Jun 30, 2019, the fiber optic bandwidth infrastructure company had $186.1 million in cash and equivalents with $5,839.7 million of long-term debt compared with the respective tallies of $256.7 million and $5,690.1 million a year ago.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Zayo Group has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. Notably, Zayo Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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