Selected Stocks Under $10: Level 3 (LVLT)

Level 3 (LVLT) has fallen almost 35% in the last month. Recent earnings numbers hurt the stock. For the last quarter consolidated revenue was $1.061 billion compared to consolidated revenue of $875 milion for the third quarter last year. . The net loss for the third quarter 2007 was $174 million, or $0.11 per share, compared to a net loss of $163 million, or $0.12 per share, for Q3 06. 

Debt service was still an anchor. Interest payments hit $138 million.

Long-term debt is still an astonishing $6.833 billion.

And, the company lowered forecasts. “Primarily due to the provisioning issues we have been experiencing, we have lowered our Consolidated Adjusted EBITDA guidance for both the full year 2007 and 2008,” said Sunit Patel, CFO of Level 3. “Specifically, we have lowered Consolidated Adjusted EBITDA guidance for the full year 2007 from a range of $860 million to $920 million to a range of $813 million to $833 million and for the full year 2008 from $1.15 billion to $1.3 billion to $950 million to $1.1 billion.

Level 3 has made six significant acquistions since the beginning of 2006, and the market is beginning to believe that this was way too much.

Level 3 is broken at this point. Its businesses include Internet Protocol services, broadband transport and infrastructure services, voice and voice over IP services, and content delivery and media distribution services. A lot of moving pieces.

It is not clear that broadband bandwidth margins are improving at all or whether there is still more bandwidth capacity in the US than there is demand. The content delivery business has begun to be hurt by excess competition with companies like Akamai (AKAM) seeing their shares slide.

Until Level 3 can demonstrate that all of its new businesses work together or there is a sharp spike up in pricing for bandwidth and related services, a company with this much debt is going to be very unattractive to Wall St.

Douglas A. McIntyre

Get a Free Trial Subscription to the weekly "Ten Stocks Under $10" from 24/7 Wall St. and follow our opinions on companies with inexpensive shares, both big firms and small ones.