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Level 3 Communications Strong on tw telecom Deal & CNS

On Sep 24, we initiated coverage on Level 3 Communications, Inc.LVLT - a provider of local, national and global communications

services to enterprises, government and carrier customers.

Level 3 Communications is expected to perform well in the rest of 2015 owing to synergies from the acquisition of tw telecom in Oct 2014, which has placed the company as a global leader in the business communications market . Level 3 Communications currently owns a 200,000-mile fiber-optic network that connects 50,000 business customers across six continents. Moreover, the company expects to generate $200 million of annual cost synergies post the integration of tw telecom.

Recently, Level 3 Communications launched a broadcast video solution over the Internet - Vyvx Internet Access - to address technology advances and the continuous rise in demand for content across the globe. Vyvx Internet Access is designed to allow media companies to distribute content worldwide, more easily and efficiently.

Notably, the company reported mixed financial results in the second quarter of 2015, wherein the top line missed the Zacks Consensus Estimate while the bottom line outpaced the same. In addition, the company reiterated its adjusted EBITDA growth outlook at 14% to 17% and free cash flow guidance at $600 million to $650 million for 2015.

Meanwhile, impressive performance by Core Network Services (CNS) in North America is a major positive for the company. In second-quarter 2015, CNS revenues stood at $1,941 million, up 5% year over year while North America generated $1,551 million of CNS revenues, up 7% year over year.

However, integration costs related to the tw telecom acquisition might hurt the bottom line in the coming quarters. Also, failing to properly integrate tw telecom will deprive the company of the expected synergies.

Moreover, the company faces risks from adverse foreign currency transaction that may impact revenues. Intensifying competition in the enterprise communications market adds to the woes.

Level 3 Communications presently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in this sector include AT&T, Inc. T , Sprint Corporation S and T-Mobile US, Inc. TMUS . All the three stocks carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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