Re: Goldman
<< Level 3 Communications (NASDAQ:LVLT) is on track to churn out enough cash to launch a stock buyback, says Goldman Sachs, which added the telecom-services provider to its "conviction list" on Tuesday.
But if Level 3 stays acquisitive, that might work against a stock repurchase program, says Goldman analyst Brett Feldman in a research note.
Level 3 in 2014 acquired TW Telecom, becoming a stronger rival to AT&T (NYSE:T) and Verizon Communications (NYSE:VZ) in providing telecom services to businesses.
Separately, Macquarie Capital has speculated that combining Limelight Networks (NASDAQ:LLNW) and Level 3's CDN, or content-delivery network business, meanwhile, would create a formidable rival to Akamai Technologies (NASDAQ:AKAM).
Goldman's Feldman says a stock buyback would be a good move as Level 3 generates more free cash flow. Feldman rates Level 3 stock neutral, however, and has cut his price target to 60 from 64.
"Level 3 has not formally committed to a share repurchase program, or any other incremental capital allocation plans," wrote Feldman. "We estimate that Level 3 will generate enough liquidity (FCF plus borrowing capacity) to theoretically repurchase 60% of its stock over the next five years. While Level 3's ultimate uses of FCF are to be determined, we believe this (model) is illustrative of the substantial operating and financial leverage it can achieve by capital redeployment."
Level 3 stock was up 1% in morning trading in the stock market today, near 45.50. In May, Level 3 stock touched a seven-year high above 57 and now is trying to regain its 50-day line for the first time since late July.