Yahoo Finance Level 3 Communications Saves on Costs, Competition Rife
On Feb 5, 2016, we issued an updated research report on Level 3 Communications Inc. LVLT. The company reported mixed financial results in the fourth quarter of 2015 wherein the bottom line duly met the Zacks Consensus Estimate but the top line missed the same.
Level 3 Communications continues to streamline its cost structure by optimizing network operations. At the end of the fourth quarter, the company had achieved $216 million of annualized operational savings, exceeding its $200 million synergy target ahead of schedule.
Moreover, the company recently launched a new product – Level 3 Secure Access Cellular Service – that uses both cellular and security technologies to provide a redundant and scalable option for Internet connectivity. This product provides on-demand rapid network connectivity as well as redundancy for business continuity capabilities useful for its business customers. We believe a growing portfolio of managed security services will help the company boost its revenues from the business segment going forward.
Also, Level 3 Communications continues to invest in more data centers and cloud service providers across the globe and remains one of the best connected communications companies to leading cloud providers. We believe the company’s ability to create an adaptive and flexible networking environment allows customers to more effectively utilize cloud resources, thereby, enhancing chances of customer retention.
The Risks
The enterprise communications market is highly competitive. In North America, Level 3 Communications competes with telecom behemoths like Verizon Communications Inc. VZ and A&T Inc. T. Comcast Corp. CMCSA is the latest entrant in the field. In Europe and Latin America, the company competes with Telefonica, Orange, BT Group and Telmex, to name a few. Most of these companies boast solid resources compared to Level 3 Communications, to bring to market technically superior products.
Further, customer concentration is a major concern for Level 3 Communications. The company's top ten customers account for the majority of its total revenue. Thus, the loss of any of these customers or consolidation among them will have a significant material impact on the company’s top line. Also, fluctuations in the global macro economy could have an adverse effect on the company’s business, results of operations and financial condition.
Level 3 Communications currently has a Zacks Rank #3 (Hold).
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