Level 3 Communications (LVLT) has done remarkably well this year since it is viewed as a company with only modest growth and positive cash flow prospects. The stock price is slightly down YTD at about $2.70. The NASDAQ is down close to 20%.
Wall St. appears to think that management’s new approach to running the company which includes killing its aggressive M&A activity and focusing on costs will work. Investors also have to believe that the company’s nearly $7 billion in long term debt will not be too much of a drag in a terribly poor credit environment.
Level 3 has a more immediate problem which may show up in its Q3 results. Growth of broadband traffic, especially video content, has begun to slow. As the owner of one of the largest broadband networks in the world, Level 3 cannot post good earnings if it core market is showing only modest growth. Shareholders may look at their positions before LVLT earnings. It will have to show that its broadband transport business is doing better than many analysts expect or face an aggressive sell-off.
Douglas A. McIntyre
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