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Trade-Ideas: Level 3 Communications (LVLT) Is Today's "Perilous Reversal" Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Level 3 Communications (LVLT) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Level 3 Communications as such a stock due to the following factors:

  • LVLT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $45.0 million.
  • LVLT has traded 853,946 shares today.
  • LVLT is down 3.3% today.
  • LVLT was up 6.2% yesterday.

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More details on LVLT:

Level 3 Communications, Inc., together with its subsidiaries, operates as a facilities-based provider of a range of integrated communications services primarily in North America, Latin America, and Europe. Currently there are 6 analysts that rate Level 3 Communications a buy, no analysts rate it a sell, and 9 rate it a hold.

The average volume for Level 3 Communications has been 1.5 million shares per day over the past 30 days. Level 3 has a market cap of $5.5 billion and is part of the technology sector and telecommunications industry. The stock has a beta of 1.32 and a short float of 10.7% with 6.91 days to cover. Shares are up 6% year to date as of the close of trading on Wednesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Level 3 Communications as a hold. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet.

Highlights from the ratings report include:

  • LEVEL 3 COMMUNICATIONS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, LEVEL 3 COMMUNICATIONS INC continued to lose money by earning -$1.97 versus -$6.40 in the prior year. This year, the market expects an improvement in earnings (-$0.46 versus -$1.97).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Diversified Telecommunication Services industry. The net income increased by 61.3% when compared to the same quarter one year prior, rising from -$62.00 million to -$24.00 million.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Diversified Telecommunication Services industry and the overall market, LEVEL 3 COMMUNICATIONS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The debt-to-equity ratio is very high at 7.70 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, LVLT maintains a poor quick ratio of 0.88, which illustrates the inability to avoid short-term cash problems.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

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