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Level 3's Not Cheap And Isn't A Buy, Warns Drexel Hamilton

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Level 3's Not Cheap And Isn't A Buy, Warns Drexel Hamilton
  • Level 3 Communications, Inc (NYSE: LVLT) shares have declined steadily over the last three months and are down 13 percent since July 13.
  • Drexel Hamilton’s Barry M. Sine maintained a Hold rating on the company.
  • The company’s stock is not cheap and there are not enough fundamental drivers to buy the stock, Sine noted.

Level 3 is a leading operator of global fiber optic networks and metro and under-sea fiber networks in North America, Europe and South America. The company’s share price has declined 20 percent from its 52-week high of $57.08 on May 5, 2015.

Analyst Barry Sine believes that Level 3’s stock is not cheap in view of the company’s high capex levels, at 15 percent of its revenues, and low return on assets, which is below 3 percent so far this year.

The company is expected to report lackluster 3Q results, with pro forma revenue growth of around 2.5 percent and a 7.1 percent increase in its EBITDA. Sine added that about half of the improvement in the EBITDA is expected to be driven by merger synergy realization.

“So while the quarter should so some improvement, we do not see enough likely fundamental drivers in the quarter to suggest buying the stock,” the Drexel Hamilton report stated.

Level 3 is yet to fully integrate the late 2014 acquisition of TW Telecom Inc (NASDAQ: TWTC). Sine said that the additional synergies from the deal could boost margins by around 1 percent over the next few years and increase EBIDA by about 3 percent.

Latest Ratings for LVLT

DateFirmActionFromTo
Oct 2017BarclaysMaintainsEqual-Weight
May 2017Raymond JamesDowngradesMarket PerformUnderperform
Mar 2017Morgan StanleyReinstatesEqual-Weight

View More Analyst Ratings for LVLT
View the Latest Analyst Ratings

 

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