The analyst firm set a price target of $51 for the company. Level 3 has "set conservative cost-savings targets" for its merger with tw telecom (TWTC) , according to Macquarie analyst Kevin Smithen.
"In our view, TWTC should be a far easier business to integrate than previous LVLT deals due to its: 1) lack of int'l assets and close proximity to LVLT; and 2) TWTC was not itself a roll-up of other assets the way GLBC was. Finally, we feel that some of the 'flowback' and arb pressure from the deal has been the primary cause for the recent pullback, so we are less worried about these issues than we were a month ago," Smithen wrote.
Separately, 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 revenue growth, impressive record of earnings per share growth and compelling growth in net income. 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:
- LVLT's revenue growth has slightly outpaced the industry average of 1.1%. Since the same quarter one year prior, revenues slightly increased by 3.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
- 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 ($1.40 versus -$0.50).
- The gross profit margin for LEVEL 3 COMMUNICATIONS INC is rather high; currently it is at 62.28%. 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 3.13% 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 4.98 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
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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.