NEW YORK (TheStreet) -- Shares of Level 3 Communications Inc. (LVLT - Get Report) are now down -5.04% to $41.87 on very heavy trading volume after the integrated communications services firm earlier said it will buy Internet services provider TW Telecom Inc. (TWTC) for over $5.6 billion to expand its commercial fiber network in the U.S.
TW Telecom share are up 8.06% to $39.27.
Level 3 shareholders would own 71% of the combined company and TW Telecom shareholders the rest, Reuters noted.
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 impressive record of earnings per share growth, compelling growth in net income and revenue growth. 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 analysis by TheStreet Ratings Team goes as follows:
- 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 ($1.51 versus -$0.50).
- 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 243.6% when compared to the same quarter one year prior, rising from -$78.00 million to $112.00 million.
- The gross profit margin for LEVEL 3 COMMUNICATIONS INC is rather high; currently it is at 61.84%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.96% trails the industry average.
- 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. In comparison to the other companies in the Diversified Telecommunication Services industry and the overall market, LEVEL 3 COMMUNICATIONS INC's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- The debt-to-equity ratio is very high at 5.23 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 0.75, which illustrates the inability to avoid short-term cash problems.
- You can view the full analysis from the report here: LVLT Ratings Report