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A Boon for Level 3 Communications - Fitch Raises Rating

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Level 3 Communications Inc. recently received a shot on its arm as credit rating agency Fitch Ratings has upgraded the Issuer Default Rating (IDR) assigned to it to 'BB' from 'BB-.' The rating agency has cited ongoing revenue growth of the company’s enterprise division as the main reason for the rating upgrade.

Level 3 Communications is gradually converting itself from a retail customer centric service provider to a predominantly enterprise-focused entity. Management has taken three strategic decisions in this regard. These are, increasing enterprise customer sales, deployment of a sizeable metro fiber network and developing a strong IP-based product portfolio.

Ongoing growth in enterprise service revenues is helping to boost the company’s core network services (CNS) revenue. In the second quarter of 2016, Level 3 reported $1.95 billion in CNS revenues, up 2.8% year over year. Within the CNS unit, IP & Data and Transport & Fiber were the dominant segments, generating $915 million and $575 million in revenues, respectively.

Acquisition of tw telecom has positioned Level 3 Communications as the second largest metro Ethernet service provider after AT&T Inc. (T - Free Report) . In this regard, the company is well ahead of large telecom operators like Verizon Communications Inc. (VZ - Free Report) and Comcast Corp. (CMCSA - Free Report) . Level 3 Communications currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Level 3 Communications has a strong presence in several fields of enterprise networking including data networks, content distribution, managed services, securities, voice cloud and cloud connection. The company stands to benefit from the ongoing trend of large enterprise customers shifting to IP and fiber-based network architecture. Level 3 Communications is now diversifying geographically in Latin America and Europe.

With growing demand for bandwidth for implementing converged IP-based networks, Level 3 Communications’ growth prospects stand on solid ground. Top-line growth is likely to accelerate in the future as a result of encouraging demand for higher bandwidth transport to enterprise customers. Continuous deployment of IP-based bundled networks of voice, data, Internet, and video solutions is expected to favorably impact the company’s performance.

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