Look Past Near-Term Issues At Level 3 To Capitalize On Long-Term Value
Barclays’ Amir Rozwadowski believes that at the current valuation levels for Level 3 Communications, Inc. (NYSE: LVLT), “the rising likelihood for value accretive actions by management should provide support for investors to look past near-term challenges in order to gain exposure to longer-term favorable secular demand trends.”
Rozwadowski initiated coverage of the company with an Overweight rating and price target of $54.
The analyst mentioned that recent missteps by management have led to concerns regarding Level 3 Communications’ ability to achieve its growth targets.
Rozwadowski expects the recent churn issues witnessed by the company to persist, muting the near-term growth prospects, and stated that “the combination of healthy industry demand and potential catalysts focused on either shareholder returns or M&A seem too material to ignore given recent compressed valuation levels.”
Over time, however, the analyst expects the target of 1.5–2.0 percent quarter-on-quarter CNS revenue growth to be an achievable target, given the rising bandwidth needs and initiatives implemented by management to improve execution.
Rozwadowski also believes rising cash flow yields, along with lower leverage, create greater financial flexibility for Level 3 Communications to pursue either “shareholder friendly” initiatives or additional inorganic expansion.
Either option would be value accretive, the analyst believes.
In addition, Rozwadowski believes that “[p]ervasive connectivity, rising usage of bandwidth-intensive applications, and improved network efficiency through technology enhancements should support healthy broadband demand growth.”
At last check, Level 3 was up 1.06 percent at $46.58.
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Latest Ratings for LVLT
|Dec 2016||SunTrust Robinson Humphrey||Initiates Coverage On||Hold|
|Nov 2016||Goldman Sachs||Downgrades||Buy||Neutral|
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