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Msg  117149 of 181508  at  2/12/2013 8:59:54 PM  by


BoA still believes

�� Mixed bag in 4Q

Level 3 4Q12 results were a mixed bag. Better than projected Core Network

Services (CNS) revenue ($1.42bn versus BofAML and Street of $1.41bn) was

more than offset by missed Adjusted EBITDA guidance, and a muted 2013

forecast. We attribute the -13.5% sell off to a market unforgiving of any quarterly

shortfall and expectations for 2013 Street estimates to step down. Beyond the

high level noise of the quarter and after thoroughly scrubbing our numbers we

view Level 3 as attractive based on projected FCF yield (2013E 2% and 2014E

8%), Adjusted EBITDA growth (2013E 15% and 2014E 14%) and a relatively low

bar with regard to investor sentiment.

Moving parts in reported results

Adjusted EBITDA of $395m (versus BoAML of $398m and Street of $400m) fell

short of guidance of $407m. Level 3 reported EBITDA of $407m included a onetime

$23m benefit and $15m in Sandy and other expense offsets, which weren’t

reflected in Street estimates. We attribute the shortfall, in part, to greater than

projected integration expense, which was driven in part by headcount reductions

which are expected to lower headcount expense $40m in 2013.

Estimate revision

We have revised our estimates following 4Q12 results. Our 2013 revenue

estimate decreases from $6,580m to $6,509m on a projected 1Q sequential step

down. Our 2013E Adjusted EBITDA estimate decreases from $1,759m to

$1,681m. We have also revised our 2013E FCF estimate 4.5% lower from $195m

to $113m on greater use of working capital and cash tax.

Reiterate Buy rating $37.50 price objective

We reiterate our Buy rating and $37.50 price objective. Level 3 represents the

best risk/reward with the most company specific drivers in our alternative carrier

coverage universe. Our $37.50 price objective is based on a weighted average of

our Bear, Base and Bull case scenario analysis.

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Msg # Subject Author Recs Date Posted
117152 Re: BoA still believes en_ron_hubbard 6 2/12/2013 9:09:23 PM

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