Communications services, such as traditional landline, broadband, and wireless saw immense demand last year, with people worldwide forced to adopt remote lifestyles. For  work, education, entertainment, and shopping, people had to resort to communication services. While the economic recovery this year has been helping people to return to their pre-pandemic “analog” lifestyles, the demand for communication services, along with the continuation of some pandemic-driven trends, is not expected to decline anytime soon. Investors’ interest in the communication service space is partly evident in the SPDR S&P Telecom ETF’s (XTL) 51.6% gains over the past nine months.

Rising demand for better connectivity should keep driving the industry’s growth. According to Rich Communication Services (RCS), the market’s size is projected to grow from $5.2 billion in 2020 to $11.7 billion by 2025, representing a 17.6%  CAGR.

Given this backdrop, we think communications services companies Cogent Communications Holdings, Inc. (CCOI) and IDT Corporation (IDT) should witness decent growth in the coming quarters. So, it could be wise to bet on these stocks now.

Cogent Communications Holdings, Inc. (CCOI)

CCOI delivers products and services that include dedicated internet access, including on-net and off-net services, IP transit, Ethernet services, including Ethernet point-to-point and virtual private LAN services, and colocation services. The Washington, DC company serves small- and medium-sized businesses, communications service providers, and other bandwidth-intensive organizations.

The company’s revenue increased 4.2% year-over-year to $146.78 million for the first quarter ended March 31, 2021. Its net income for the quarter came in at $18.85 million, up 104.3% from the prior-year quarter. CCOI’s EPS was  $0.41, which represents a 105% increase year-over-year.

Analysts expect CCOI’s EPS and revenue to increase 14% and 5.8% year-over-year to $1.22 and $626.23 million, respectively, in  2022.

CCOI’s subsidiary, Cogent Communications Group, Inc., intends to price an offering of $500 million aggregate principal amount of senior secured notes. But prior to the consummation of the offering, the company expects to redeem $45 million in  secured notes, following which $284.1M of the existing secured notes will remain outstanding. CCOI expects to use the net proceeds to the forthcoming offering to redeem the remaining $284.1 million of the outstanding secured notes, for general corporate purposes, and/or to make special or recurring dividends to the company. The stock has gained 28.9% over the past six months to close yesterday’s trading session at $76.97.

It’s no surprise that CCOI has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

CCOI has a B grade for Stability and Quality. Click here to see CCOI’s ratings for Growth, Momentum, Value, and Sentiment as well. CCOI is ranked #2 of 23 stocks in the Telecom-Domestic industry.

IDT Corporation (IDT)

IDT distributes and markets communications and payment services. The company operates through three business segments—Fintech, net2phone-UCaaS, and Traditional Communications. It provides retail and wholesale telecommunications services and products, including pre-paid and rechargeable calling cards and wholesale carrier services.

For its  fiscal third quarter, ended April 30, 2021, IDT’s revenues were $373.83 million, which represents a 16.3% year-over-year rise. The company’s non-GAAP net income for the period was  $12.30 million, up 515% year-over year. Its non-GAAP EPS increased 487.5% year-over-year to $0.47.

On June 9, 2021, National Retails Solutions (NRS), a subsidiary of IDT, announced the expansion of its partnership with Koupon, a leading provider of shopper engagement services, to significantly extend the reach of consumer-packaged goods (CPG) brands through independent C-stores. Adding NRS as an advertising and digital partner enables Koupon’s clients to promote its  CPG brands with unprecedented visibility and operate more effectively. The stock has rallied 467.3% over the past year to close yesterday’s trading session at $36.48.

IDT’s POWR Ratings reflects this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system.

The stock has an A grade for Growth, and a B grade for Value. Apart from these, one can see IDT’s ratings for Stability, Sentiment, Quality, and Momentum here. IDT is ranked #1 in the  Telecom-Domestic industry.

CCOI shares were trading at $77.24 per share on Wednesday afternoon, up $0.27 (+0.35%). Year-to-date, CCOI has gained 31.96%, versus a 15.19% rise in the benchmark S&P 500 index during the same period.

About the Author: Ananyo Guha Niyogi

Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...

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