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Why Level 3 Communications (LVLT) Stock Is Gaining Today

NEW YORK (TheStreet) -- Level 3 Communications (LVLT) was gaining 9.6% to $40.66 Wednesday after beating analysts' earnings and revenue in the first quarter and raising its EBITDA forecast for 2014.

For the first quarter Level 3 reported earnings of 47 cents a share, beating Capital IQ Consensus Estimate of 27 cents by 20 cents. Revenue rose 2% from the year to $1.61 billion, beating analysts' estimates of $1.59 billion.

Looking to the full-year the communications company now expects adjusted EBITDA to brow 14% to 18%, up from its previous guidance of 11% to 14% growth. Level 3 also raised its Free Cash Flow estimates for the year to between $250 million and $300 million, up from between $225 million and $275 million.

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TheStreet Ratings team rates LEVEL 3 COMMUNICATIONS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

"We rate LEVEL 3 COMMUNICATIONS INC (LVLT) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Powered by its strong earnings growth of 123.07% and other important driving factors, this stock has surged by 85.00% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • 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 -$0.50 versus -$1.97 in the prior year. This year, the market expects an improvement in earnings ($1.14 versus -$0.50).
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 2.7%. Since the same quarter one year prior, revenues slightly dropped by 0.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • Net operating cash flow has declined marginally to $386.00 million or 3.50% when compared to the same quarter last year. Despite a decrease in cash flow of 3.50%, LEVEL 3 COMMUNICATIONS INC is in line with the industry average cash flow growth rate of -10.56%.
  • The debt-to-equity ratio is very high at 5.93 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 0.91, which illustrates the inability to avoid short-term cash problems.
  • You can view the full analysis from the report here: LVLT Ratings Report

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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.

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