Level 3 Communications A Long-Term Gem In The Making

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
  • Trends
  • Valuation
  • Risks
  • 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


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