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Contributors: Douglas McIntyre Jon C. Ogg

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Tuesday, October 24, 2006

Level 3 Earnings Greeted With Mixed Reception

Level 3 (LVLT) posted a narrower loss than expected in its last quarter. They posted EPS at -$0.12 vs -$0.14 estimates and down from -$0.29 last year. Unfortunately, this quarter did include a gain of $33 million from its Software Spectrum unit. Revenue was up more than 125% to $875 million, but consensus estimates were $905 million to $916 million from source to source.

The shares are down pre-market from the $5.78 close. Shares are trading down at $5.43 to $5.44 on 4.8 million shares in pre-market activity as the street is trying to digest the numbers and as it tries to figure out of the analysts had adequately accounted for the Software Spectrum sale. Very frequently the street does not account for such dissolutions or backing out of operations in smaller units.

What may be odd here is that the company just acquired Broadwing (BWNG) for cash and stock. When companies take equity in lieu of cash in a buyout, they tend to have a more vested interest in the acquirer and tend to have the need to care about operating results.

Level 3's Q4 forecast for total communications revenue ranges from $785 to $830 million, with core communication revenue of $595 million to $605 million. It expects total communications revenue of $3.27 billion to $3.31 billion for the full year, with core communications of $1.95 billion to $1.96 billion in revenue.

Cramer was just positive on Level 3 again last night on MAD MONEY. Jefferies earlier before the results took its rating on Broadwing (BWNG) from a Buy to Hold based on the valuation of the merger.

Jon C. Ogg
October 24, 2006

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