Level 3 Communications (LVLT)

(24 January 2017)

LVLT Business Summary

Level 3 Communications Inc is a facilities based provider of a range of integrated communications services that owns or leases a substantial portion of the plant, property and equipment necessary to provide its services.

LVLT Fundamentals

  • Price to Earnings: 5.71
  • Earnings Per Share: $10.57
  • Market Cap: 21.2B
  • Current Ratio: 1.63
  • Return on Equity: 35.87%
  • Return on Assets: 15.19%
  • Dividend Yield: 0.00%
  • Price to Sales: 2.25
  • Price to Book: 1.76
  • Price to Free Cash Flow: 35.13

Balance Sheet ($ in Millions)

  • Total Assets increased $212.
  • Total Current Liabilities decreased $8.
  • Total Liabilities Decreased $12.
  • Total Stockholder Equity increased $224.

Income Statement ($ in Millions)

  • Total Revenues decreased $33.
  • Income from Operations decreased $20.
  • Net Income decreased $6.
  • EBITDA increased $35.

Cash Flow Statement ($ in Millions)

  • Net Cash provided by operating activities increased $14.
  • Net Cash used in investing activities increased $837.
  • Net Cash provided by financing activities decreased $814.
  • Free Cash Flow increased $17.

Highlights from Last 10 10-Qs

  • What I am looking for are trends within the financials, so starting with income statement, the trend of revenues is solidly increasing, while remaining steadily high.
  • Operating income is trending higher.
  • Net Income is volatile and sporadic, which is a red flag.
  • EBITDA is trending upwards.
  • Net cash from operations is trending upwards.
  • LVLT spent a lot of their cash in investing activities since their most recent last quarter.
  • Also, they have used far less cash in financing activities, thus decreasing their current liabilities.
  • Total current assets are cyclically trending upwards.
  • Total Assets consistently trending upwards.
  • Current Liabilities are trending downwards, while total liabilities slightly tick upwards.

Entry Level: $48 to $50

  • The stock has run up 25% in the last 3 months, so entering the position now would be a bad idea.

Exit Level: $115

  • I put it’s intrinsic value in that $110 – $115 range based on discounted cash flows, anything over that I would consider the stock overvalued, would sell and take profits.

Reasoning

  • LVLT is an interesting company. With a fair value at $111, it presents a margin of safety of 47%, certainly enticing. With the rise of LTE speeds, 5G LTE service will be here before we know it. With that in mind, who will be the big players in the 5G world, and more importantly, which companies will profit from it the most?
  • Out of all the telecom companies that I looked at, LVLT is the best value approach to that industry and service. Trading at 5.65x it’s earnings, it is one of the, if not the lowest P/E ratio in the entire sector. As a whole, Telecomms saw tremendous growth over the last year, making most telecom companies bad value plays.
  • Once again, I put the entry level at $48 – $50, and I think that is where you’ll get the biggest risk / reward ratio.
  • Level 3 is also in position for a $4.2 million payout from CenturyLink merger.
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