Level 3 Won’t Stop Falling

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Shares in Level 3 (LVLT) won’t stop falling. The stock is down almost 25% in the last six moths with most of that slide coming since early July.

LVLT seems to be in a great business. It provide a huge highway for the delivery of internet data, video, and voice. In the last reported quarter, LVLT revenue moved from $819 million to $1.035 billion. The company’s net loss was flat at just over $200 million. Acquisitions played a part in the revenue improvement.

What Level 3 has that Wall St. does not like is boat loads of high yield debt, over $.6.8 billion. And, the company is not exactly throwing off a lot of cash.

High yield debt was in favor until a couple of months ago, but that has changed considerably. Even relatively attractive private equity deals are having immense problems getting funded. That makes the market cast a jaundiced eye toward a company like Level 3.

If earnings and cash flow are not good in the current quarter, LVLT could end up with very few supporters.

Douglas A. McIntyre