Added a market sentiment poll to the IIEX website. Feel free to vote on a monthly basis or if you change your sentiment. The webpage is at:
The more votes the better so feel free to pass this link on to others. It would be interesting to see the bull bear ratio of the community (if enough people participate).
On June 16, 2014 Level 3 Communications (LVLT) and tw telecom (TWTC) announced Level 3 will acquire tw telecom in a stock-and-cash transaction which we examined in our last article. We projected pro-forma results over the next five years. Those who follow these articles know I publish detailed historical and projected financials reflected in this and past articles available (in pdf format) here and an interactive model allowing readers to input their own assumptions to generate a detailed financial summary and income statement and fair value here.
Those who follow the company know Level 3 does not make public long-term forecasts as to future performance or other prospective financial information beyond the current fiscal year leaving it up to analysts and investors the task of determining if there is long term value to be had. This article is not going to get into Business segments, financial trends based on historical trends, risks etc. Why? Because all this was discussed in the last two articles which can be found here and here.
This is an update to compare the research published in past articles (and data on the IIEX website) to data from the S-4 filed with the SEC. This filing provides selected longer term financials prepared by Level 3 and tw Telecom as part of the due diligence in connection with the merger. This filing provides a check to existing research which has been based on the historical trends of the new focus (Enterprise) by new Level 3 leadership.
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- Both firms have the same focus; enterprise customers.
- Small network overlap bodes well for increasing existing customer sales in addition to new customer sales.
- Free cash flow per share is accretive after 2015; total free cash flow dollars increase substantially.
On June 16, 2014 Level 3 Communications (LVLT) and tw telecom (TWTC) announced Level 3 will acquire tw telecom in a stock-and-cash transaction valued at $41.92 per share at the time of this writing. Under the terms of the agreement tw telecom stockholders will receive $10 cash and 0.7 shares of Level 3 common stock for each share of tw telecom common stock at closing. The deal is expected to close in the fourth quarter.
Is this a good deal for the Level 3 shareholder? The deal must be accretive to FCF (free cash flow). The announcement noted the transaction is expected to be accretive to Free Cash Flow per share after the first year following transaction close but the magnitude of the gains are not defined. This article attempts to define these gains. We’ll also highlight EPS and EBITDA effects but the focus is FCF.
WHY A COMBINATION MAKES SENSE:
We’ve discussed in past articles that when Level 3 made a leadership change they also shifted their focus on Enterprise customers. Level 3’s growth driver is Enterprise and has been gaining traction over the last year as shown below:
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I’ve been bullish through the last few articles and that view was just reinforced with the latest earnings report. Previous articles highlighted Level 3 Communications (LVLT) new focus and management change that marked a turning point toward profitability. The company moved from being primarily a wholesale provider to a company focused on serving the day-to-day business needs of enterprise customers spearheaded by a new CEO. These changes are driving growth in both earnings and FCF.
Level 3 announced first quarter results and raised guidance on April 30, 2014. Ongoing trends based on management’s record and short term guidance will be a strong indicator of management’s longer term success for growing profits and more importantly becoming a cash generating machine. This article discusses the following:
- Revenue defined
- Final thoughts
It’s important to understand how Level 3 reports revenue and their focus on enterprise is their future. Focusing on all revenue in the short term will mask the underlying growth momentum being generated by the enterprise business, although with each earnings announcement the veil is being lifted as enterprise comprises a larger piece of the revenue pie.
The company’s revenues are reported in two groups, CNS (Core Network Services) and lower margin “Wholesale Voice Services & Other” revenue.
Wholesale Voice Services and Other revenue represent sales of long distance voice services, revenue from managed modem and its related intercarrier compensation services and revenue from the “SBC Master Services Agreement,” which was obtained through an acquisition in 2005. …Click here to continue reading the complete article…
Carl Dietrich, CEO/CTO, and Anna Dietrich, COO, were honored to assist Governor Deval Patick in promoting the science initiative in public schools as keynote speakers at the 10th annual Massachusetts STEM Summit. Video below:
For more in depth reporting on the company click here for IIEX articles on Terrafugia
Our first article on Windstream (WIN) concluded:
Waiting to see how the second half develops may be the prudent path before allocating new or additional cash toward this investment.
The day the article was published Windstream closed at 11.27. While dividends have been sustainable there are dark clouds putting downward pressure on the stock price which included the uncertainty of future cash taxes, revenue growth not as robust as investors hoped and a high leverage ratio. Our last article which brought us through the first half of 2013 concluded:
Management can sustain the dividend for several years given the current revenue and customer trends provided management can accept a high FCF payout and leverage ratios. In the meantime the challenge is to reverse the overall revenue trend which will pull the ratios toward more acceptable levels.
Question is has anything changed for better or worse now that we have 2014 guidance and additional insight on future cash taxes?
This article examines:
- Revenue trends based on results and guidance; both used to project financials, more importantly free cash flow on.
- Final thoughts
REVENUE TRENDS & FREE CASH FLOW
Windstream recently released fourth quarter and full year results providing the 2014 outlook and cash tax guidance through 2015. The trends through the first half of 2013 are shown with the recent trends to get an idea whether they are improving or not.
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