More than a month has gone by since the last earnings report for Level 3 Communications, Inc. . Shares have lost about 10.9% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Level 3 Communications Tops Q2 Earnings & Revenues
Level 3 Communications' second-quarter 2017 net income (on a GAAP basis) was $154 million or $0.42 per share compared with $156 million or $0.44 in the year-ago quarter. However, quarterly adjusted earnings per share (EPS) of $0.42 outpaced the Zacks Consensus Estimate of $0.39. The company’s bottom line declined 19.23% on a year-over-year basis.
In Second-quarter 2017, total revenue was $2,061 million, up 0.24% year over year and above the Zacks Consensus Estimate of $2,059.5 million.
Segment-wise, Core Network Services’ (CNS) revenues amounted $1,965 million, compared with $1,956 million in the year-ago quarter. Wholesale Voice Services and Other revenues totaled $99 million compared with $100 million in the prior-year quarter.
Geographically, North America generated $1,607 million in CNS revenues, flat year over year. Europe, the Middle East and Africa accounted for $176 million of revenues at CNS, down 8%. Latin America contributed $182 million, up 14%.
Total operating expenses in the reported quarter were $1,708 million compared with $1,682 million in the year-ago quarter. Operating income came in at $353 million compared with $374 million in the first quarter of 2016. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was $722 million versus $715 million at the end of Jun 2016. Adjusted EBITDA margin expanded to 35.0% from 34.8% in the prior-year quarter.
In the quarter under review, Level 3 Communications generated $564 million of cash from operations compared with $631 million in the year-ago quarter. Free cash flow was $233 million compared with $264 million in the prior-year quarter.
At the end of Jun 2017, the company had $1,056 million of cash and cash equivalents compared with $1,291 million and $1,947 million, at the end of Jun 2016 and Mar 2017. Total outstanding debt was $10,890 million compared with $10,878 million and $10,888 million, at the end of Jun 2016 and Mar 2017. Meanwhile, the debt-to-capitalization ratio was 0.43 compared with 0.44 at the end of Mar 2016.
2017 Guidance/Business Outlook
The full-year guidance was reiterated at $2.94–$3.00 billion for EBITDA, $1.10–$1.16 billion for free cash flow and 16% of total revenue for capital expenditure. Depreciation and amortization is projected at be $1.35 billion.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
At this time, the stock has an average Growth Score of C, while its Momentum is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for value and to a lesser degree growth.
While estimates have been moving downward, the magnitude of the revision is net zero. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.