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Zayo (ZAYO) Hits 52-Week High on Healthy Growth Dynamics

Zacks Equity Research

Shares of Zayo Group Holdings, Inc. ZAYO scaled a new 52-week high of $34.71 during yesterday’s trading session, before closing a tad lower at $34.69. The stock has the potential for further price appreciation and looks poised to touch new highs in 2020 on the back of healthy growth dynamics.

Growth Drivers

Zayo is well poised to benefit from a diversified blue-chip customer base that comprises the largest and most sophisticated users of bandwidth. The company aims to grow the network business at 5% and beyond while controlling expenses to boost OpEx efficiency. Zayo emphasizes on less than 12-month payback deals while opting for strategic investments like e-rate deals, mobile infrastructure and long-haul fiber. Such deals leverage its existing assets in conjunction with new builds. These are likely to deliver strong free cash flow yields and attractive returns on invested capital.

Markedly, Zayo’s multi-site data center portfolio, ability to customize its solutions and capability to connect globally over its network are key growth drivers. The company continues enhancing global reach by expanding its fiber footprint and forging partnerships with local providers. It has been experiencing broad-based demand across all the customer verticals, which should drive its top line.

Management is bullish about the prospects of its largest business segment, Fiber Solutions, as it is witnessing a very strong deal momentum. We also remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) company. Over the past year, the stock has outperformed the industry with an average return of 42.3% compared with the 17% rise of the latter.

The company recently augmented the network connectivity between Montreal, Quebec to Albany, NY with the expansion of its fiber network infrastructure in the region. The network expansion will add about 100G capable new wavelength route miles to connect the largest city in Quebec, Canada with one of the busiest cities in the United States. The extensive wavelength network is expected to benefit regional business and enterprise customers with dedicated bandwidth facility for data-intensive content, streaming services and IoT applications. The shorter and more direct route between the cities of two neighboring countries is likely to be operational by January 2020.

Such opportune business deals, with continued growth impetus and core focus, perhaps boosted investors’ confidence and catapulted its share price to a new 52-week high.

Stocks to Consider

Better-ranked stocks in the broader industry include KT Corporation KT, PLDT Inc. PHI and Mobile TeleSystems PJSC MBT, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

KT Corporation has a long-term earnings growth expectation of 11.5%.

PLDT is currently trading at a forward P/E of 8x.

Mobile TeleSystems has a long-term earnings growth expectation of 4.9%.

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