BTIG Starts Level 3 Communications (LVLT) at Buy
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"We are initiating coverage of Level 3 with a Buy rating and $63 price target primarily based on valuation, as the free cash flow yield has risen to 6.7% on our 2017 free cash flow estimate following a 12% drop in the stock since reporting disappointing Q2 results two weeks ago," said Piecyk.
The analyst continued, "Our estimates are below consensus, but we believe the remaining investors now have more conservative expectations than our sell-side peers. Misplaced optimism about Level 3′s ability to deliver high single-digit growth combined with press speculation of the company being for sale resulted in a rally in the stock ahead of the Q2 report. The move was reminiscent of the Q4 2015 report when disappointing guidance was set for the year. With speculative buyers likely now largely out of the stock, we believe the current valuation provides a compelling entry point into a recurring revenue, free cash flow generating telecom business."
Piecyk added "As net debt falls over the next six-to-nine months, we expect the management team to either repurchase shares or make a strategic acquisition that can refresh margin expansion opportunities, thereby reigniting investor interest if the valuation alone is not compelling enough."
Shares of Level 3 Communications closed at $49.27 yesterday.
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Create E-mail Alert Related CategoriesAnalyst Comments, Analyst EPS View, New Coverage
Related EntitiesDefinitive Agreement, BTIG, Walter Piecyk
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