IIEX 2Q-2015 Newsletter


The IIEX June 2015 Newsletter can be read at this link: IIEX Newsletter.

Includes a market update, focus stock (LVLT) update and excel template notes.

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Market snapshot 1924 through May, 2015


This video looks at market valuation over a rolling 25 year period using the Shiller PE. For more detail see this article. The meter above the graph shows valuation as a buy opportunity (green), proceed with caution (yellow) and over valued (red) based on medians calculated over the past 35 years from the date being analyzed.

(Note: It is easier to view in full screen mode)

https://www.youtube.com/watch?v=R5T92viDx4Q

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Has Revenue Growth Stalled At Level 3 Communications?


Level 3 Communications (NYSE:LVLT) is a global communications provider headquartered in Broomfield, Colorado, that provides communications services to enterprise, government and carrier customers in more than 60 countries around the world. Level 3 operates one of the world’s largest Internet backbones.

LVLT and tw telecom stockholders approved the acquisition of TWTC by LVLT on October 28, 2014. Level 3 reported first quarter 2015 results on April 29 and revenues were flat from Q4.  This was the first full reportable quarter for the combined company. Total growth was flat over Q4 so is this an indication growth is stalling? Before we can answer this we need to understand management’s focus on various revenue segments after a leadership change was made.

On April 11, 2013 Jeff Storey was named CEO. The leadership change cemented what direction the company would focus on; move from being primarily a wholesale provider to a company focused on serving the day-to-day business needs of enterprise customers. These changes will drive double digit growth in both earnings, FCF (free cash flow) and EBITDA over the next several years.  This article will show how single digit revenue growth are driving double digit returns.

The company’s revenues are reported in two groups, CNS (Core Network Services) and lower margin “Wholesale Voice Services & Other” revenue.
…Continue to the rest of the article…

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Is Eastman Chemical Close To A Long Term Buy?


Overview:

Eastman Chemical Company (EMN) is a global specialty chemical company that produces a broad range of advanced materials, chemicals, and fibers. Eastman began business in 1920 for the purpose of producing chemicals for Eastman Kodak Company’s photographic business. The company was spun-off from Eastman Kodak in 1994 and became a publicly traded company. Eastman has51 manufacturing sites and serves customers in approximately 100countries and 2014 revenues of approximately $9.5 billion. The company is headquartered in Kingsport, Tennessee, USA and employs approximately 15,000.

Business Segments:

Businesses are managed and reported in five reporting segments: Additives & Functional Products (“AFP”), Adhesives & Plasticizers (“A&P”), Advanced Materials (“AM”), Fibers, and Specialty Fluids &Intermediates (“SFI”).

The AFP segment manufactures chemicals for products in the coatings and tires industries in transportation, building and construction, durable goods, and consumables markets.

The A&P segment manufactures adhesives resins and plasticizers used in the manufacture of products sold into consumables, building and construction, health and wellness, industrial chemicals and processing, and durable goods markets.

The AM segment produces and markets specialty copolyesters, cellulose esters, interlayers, and aftermarket window film products.

The Fibers segment manufactures and sells Estron™ acetate tow and Estrobond™ triacetin plasticizers for use primarily in the manufacture of cigarette filters; Estron™ natural (undyed) and Chromspun™ solution-dyed acetate yarns for use in apparel, home furnishings, and industrial fabrics; and cellulose acetate flake and acetyl raw materials for other acetate fiber producers.

The SFI major products include acetyl chemical intermediates, olefin derivatives, specialty fluids, and alkylamines for use in markets such as industrial chemicals and processing, building and construction, health and wellness, and agrochemicals.

2014 Market & Geographical Summary:
…Click Here To Continue To The Full Article…

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Using Shiller To Project Market Returns


Summary

  • Future S&P returns not as enticing as past periods.
  • Examples using Shiller data to project earnings growth over a 5 and 10 year range.
  • Going forward a heavier weighting of dividend stocks could be a safer alternative to stocks with no dividend.

A few months back I wrote an article titled “A Unique Way To Use The Shiller PE As A Market Indicator“. To summarize the article for those that did not read it, although I’d suggest clicking the link above if you haven’t, were the following bullet points:

  • Shiller PE as an indicator is useful to specific time frames.
  • Using a single Shiller PE average or median over long periods is a poor indicator.
  • A rolling 25 year time frame yields useful results.

An updated graph through March is:
Continue To The Full Article; Click Here

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IIEX 1Q-2015 Newsletter


The 1Q-2015 Newsletter can be viewed here.

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Level 3 Communications: A Long Idea Still Priced At An Attractive Discount To Fair Value


INTRODUCTION

Level 3 Communications (NYSE:LVLT) is a global communications provider headquartered in Broomfield, Colorado, that provides communications services to enterprise, government and carrier customers in more than 60 countries around the world. Level 3 operates one of the world’s largest Internet backbones. LVLT and tw telecom (NASDAQ:TWTC) stockholders approved the acquisition of TWTC by LVLT on October 28, 2014. Level 3 reported fourth quarter 2014 results on Wednesday, Feb 4, 2015. This article is an update to our last article, “Level 3 Communications: A Long Idea At An Attractive Value” which is an in depth look at the company. We discussed the following topics in the last article and this article will update the topics as indicated below and not repeat ourselves for the topics we haven’t changed our view on:

  • Management Change – UNCHANGED
  • TWTC Acquisition – UNCHANGED
  • Financials (Pro-Forma) -UPDATED
  • Growth outlook (Pro-Forma) -UPDATED
  • Valuation (Pro-Forma) -UPDATED
  • Debt (Pro-Forma) -UPDATED
  • NOL’s ) -UPDATED
  • Competition – UNCHANGED
  • Open tax issues – UNCHANGED
  • Final thoughts -UPDATED

FINANCIALS (Pro-Forma)

These numbers will differ from what LVLT reported in the earnings release. Why? These are complete pro-forma numbers. LVLT reported consolidated results which only included two months of TWTC results not the full quarter and the earnings release focused more on LVLT stand-alone results.

Top line growth is critical for the combined company and the core Enterprise business continues to show traction:
…Click here to continue to the full article…

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