Dodge & Cox is binging on shares of Colorado-based telecom operator, Zayo Group Holdings Inc. (ZAYO, Financial).
The California-based investment firm now holds a total 24,858,035 shares, representing a 10% stake in the company.
In the first quarter, the firm added an additional 949,366 shares to its stake for an average price of $32.74 a share. The investment firm has been buying shares since the fourth quarter of 2016. Back then, the initial commitment was for a total 14.58 million shares, which has climbed to almost 25 million as of March 31. So far, the firm has made an estimated gain.Ă‚
Guru investor George Soros (Trades, Portfolio) is another who has been drawn to the stock. He purchased 825,000 shares in the final months of the year for an average price of $33 to $37 a share.
Zayo has been on its own multiyear acquisition binge since it was formed in 2007. It just expanded its data center footprint in North Virginia. Two weeks ago, it struck a deal with a systems and infrastructure outfit in the Paris metropolitan area. Zayo is selling the group dark fiber infrastructure to allow the user access to larger data centers in Paris and a location just south of the French capital.
Since it was formed in 2007, it has made a business of collecting and re-engineering the leftover parts of telecommunications companies that died in the tech bust.
Zayo basically leases unused fiber optics cables to companies that want to expand their networks to cell phone towers and data centers. It says on its webiste it operates 10.8 million fiber miles, providing access to 50 data centers in 391 markets around the world.
The transaction increased Dodge & Cox’s stake in the company by 3.97% . GuruFocus shows the shares had a 0.03% impact on the portfolio.
Dodge & Cox holds a total of 178 stocks in a portfolio valued at more than $129 billion.
Zayo fundamentals
The company with a market cap of $8.85 billion was trading up at over $35 a share on Tuesday. In the last 12 months, its stock has gained 8% with a 52-week average in the range of $29.73 to $37.95 a share.
It has a price-earnings ratio of 104.93 versus an industry median of 23.78. It has a price-book ratio of 5.89 versus an industry median of 1.94. It has a price-sales ratio of 3.62 versus a median of 1.41.
GuruFocus ranks it 4 out of 10 in financial strength and 6 out of 10 in profitability and growth.
Revenues have been rising for the past 12 months. Its revenue growth per share was 21.7% over the last 12 months.
At the same time, the company’s financial strength is hampered by mounting debt and interest expense, in part, as a result of all of its acquisitions.
Zayo’s long-term debt stood at more than $5.5 billion in 2017, compared to $4 billion the year prior. Its free cash flow reported a loss of $6 million, compared to a loss of $44 million in the prior year. Earnings before interest, taxes, depreciation and amortization is $1.22 per share, compared to 84 cents a share the year before.
Its net income has been falling in recent years. In 2017, net income was $12 million compared to $23 million the prior year.
Dodge & Cox performance
The bulk of the investment advisor's holdings are in financial stocks and stocks of health care and technology companies.
Over the years, the firm has stayed true to an investment style rooted in fundamentals. That is, steering clear of popular choices that come at a price they would rather not pay; investing when valuations are low; investing in companies whose current valuations don’t reflect their long-term earnings and cash flow prospects.
Morningstar describes the company as having a “decisive value approach” that inspires confidence.
Its rate of return in 2016 was 21.27%, beating the S&P 500’s 11.96%. In 2015, it posted a loss of 4.47% compared to the index’s 1.38%.
Its five-year cumulative is 119.4%, or 17% a year, compared to the S&P 500’s 98.2%, or 14.7% a year.
