Raymond James analyst Frank Louthan this morning turned cautious on providers of telecom services to business, cutting his ratings on Cbeyond (CBEY), Paetec (PAET) and TW Telecom (TWTC), all to Market Perform. He previously had a Strong Buy on CBEY, and Outperform ratings on PAET and TWTC.
“We are downgrading the CLEC [competitive local exchange carrier] sector today as we now believe the length of time it will take for an enterprise recovery will be longer than we had previously anticipated,” he writes in a research note. The analyst notes that the companies are highly leveraged to corporate hiring, and that “with the outlook for job growth unimproved we believe investors will continue to own more defensible names and chase dividend yield.”
Adds Louthan: “We continue to believe the CLECs offer a strong value proposition for customers, but as underlying businesses of their customers remain static, contract negotiations are expected to remain more difficult and net new demand fleeting. Client failures and closings have largely subsided, but the remaining customers are focused on cost, in our opinion.”
In today’s trading:
- CBEY is down 17 cents, or 1.4%, to $12.12.
- PAET is down 12 cents, or 2.8%, to $4.20.
- TWTC is down 27 cents, or 1.4%, to $18.52.
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