BTIG Initiates Level 3 At Buy, Highlights Possible M&A, Buyback Catalysts

Level 3 Communications, Inc. LVLT shares have declined 12 percent in the two weeks since the company reported disappointing Q2 results.

BTIG’s Walter Piecyk initiated coverage of the company with a Buy rating and a price target of $63.

Expectations Lowered

“Our estimates are below consensus, but we believe the remaining investors now have more conservative expectations than our sell-side peers,” Piecyk mentioned.

The analyst believes the rally in the stock ahead of the Q2 results was prompted by “misplaced optimism” regarding Level 3 Communications’ ability to deliver high single digit growth, along with speculations in the press regarding the company being up for sale.

Related Link: JPMorgan Downgrades Level 3 Communications To Neutral

Compelling Valuation

“With speculative buyers likely now largely out of the stock, we believe the current valuation provides a compelling entry point into a recurring revenue, free cash flow generating telecom business,” Piecyk stated.

M&A Or Buybacks

The analyst expects management to either buy back shares or make a strategic acquisition to drive margin expansion opportunities, once bet debt declines over the next six to nine months.

This, in turn, is likely to reignite investor interest, especially if the valuation does not appear compelling enough on its own.

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