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Technology Stocks : (LVLT) - Level 3 Communications
LVLT 53.630.0%Nov 1 5:00 PM EST
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To: The Ox who wrote (3732)9/11/2013 3:47:00 PM
From: Dwayne Hines   of 3873
 
B of A thinks it is worth $37.50 pps

BoA


<< On track for EBITDA and FCF inflection

Level 3 1Q13 results were below forecast on revenue, but incremental margin,

which was a key investor concern at 4Q results recovered to 57% in 1Q13.

Management maintained full year guidance for stronger sequential Core Network

Services (CNS) revenue growth (compared to 2012), low double digit Adjusted

EBITDA growth Y/Y and positive FCF. Commentary with regard to 1Q13 sales

(+10% Y/Y) was constructive with regard to enterprise results and forecasts from

AT&T and Verizon.

CNS revenue light, EBITDA beat

Core Network Services revenue of $1,372m was below our estimate of $1,386mn

and decreased 1.3% Q/Q on a constant currency basis. Adjusted EBITDA of

$386m beat consensus of $381m on stronger than projected margin. Enterprise

CNS revenue grew 5.1% Y/Y and was flat sequentially due to expected pressure

from UK government. Federal government spending was a drag as expected.

Estimate revisions

We have revised our estimates following 1Q13 results. Our 2013 revenue

estimate falls from $6,509m to $6,365m on weaker than projected 1Q results and

slower government spending. Our 2013E Adjusted EBITDA estimate decreases

from $1,687m to $1,633m. We have also revised our 2013 FCF estimate from

$121m to $82m.

Reiterate Buy rating $37.50 price objective

We reiterate our Buy rating and $37.50 price objective. We believe Level 3

represents the best risk/reward with the most company specific drivers in our

alternative carrier coverage universe. Our $37.50 price objective is based on a

weighted average of our Bear, Base and Bull case scenario analysis.>>
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