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Thursday, August 03, 2006

Cogent's Life Flash Before Its Eyes

Stocks: (COGT)

Cogent reported poor earnings and analyts covering the company scrabbled their jets. Morgan Stanley downgraded the company from "overweight" to "equal-weight". Jefferies raised it from "hold" to "buy". Needham downgraded the company from "hold" to "underperform".

They can't all be right.

The company, which provides finger print ID systems and biometrics, was off 24% on its second quarter release. It would have been hard for the news to be much worse. Revenue was $13.2 million compared to $39.4 million a year ago. The company did manage a small operating income of $898,000 compared with $16.8 million in Q2 05. The company's two large customers spent less with Cogent this year compare to last. But, the company said that this would improve. The details about that point were a bit thin.

In the new world of M&A activity and private equity buy-outs, Cogent just might be a company that gets snapped up. The stock is now just above $10, down from a 52-week high of $33. The company's market cap is now $990 million, but the company has $400 million in cash on its balance sheet. The open question is whether anyone would buy a company that trades at nine times sales.

If there are no takers, Cogent's road gets much more rocky unless the next quarter is a spectacular recovery.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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