D.A. Davidson Expects Level 3 Communications Q2 EPS Above Consensus

D.A. Davidson expects Level 3 Communications, Inc. LVLT to report earnings above consensus when the company announces its second quarter results on July 27.

Analyst James Moorman cut his second quarter EPS view to $0.47 from $0.51 to reflect a higher tax rate. However, he maintained his forecast for revenue at $2.074 billion and EBITDA of $710 million.

Moorman sees total revenue to grow 1.2 percent year-over-year with a 3.5 percent gain in Enterprise revenue to be partially offset by a 3.5 percent drop in Wholesale.

Region-wise, revenue from North America is expected to rise 4.5 percent YoY, while Latin America is projected to fall 16.4 percent and EMEA, including UK Government, is expected to decline 4.4 percent.

On the conference call, the analyst expects to hear about North America and a possible ramp in the second half. Moorman also expects a discussion revolving around EMEA and the impact from Brexit.

"While Brexit could create uncertainty over the next several months, we do not expect a significant negative impact," Moorman noted.

Level 3 expects 2016 adjusted EBITDA growth of 10-12 percent YoY and FCF of $1-$1.1 billion. It also expects to see higher total revenue growth in 2016 due to stronger CNS and Enterprise CNS revenue, excluding the U.K. government. The analyst cut his 2016 EPS estimate to $1.75 from $1.79.

"We look for strong free cash flow generation to attract investors from outside of the telecom sector that focus on free cash flow generation. We expect the company to first look to reinvest in the business and then potentially to return cash," Moorman added.

Moorman reiterated his Buy rating and price target of $68 on the stock. At time of writing, shares of Level 3 fell 2.37 percent to $50.71.