Level 3 Communications Inc. on Wednesday said it anticipates sequential growth in the second half of the year.
Analysts and investors will be watching closely to see if the global communications company meets its guidance on the heels of a second-quarter that fell short of Wall Street's expectations and hurt its stock price. The stock closed Thursday at $18.12, worth roughly about half its 52-week high ($36 on October 5, 2011), according to NYSE Technologies Global Market Data.
Level 3 reported weak European sales, particularly from the U.K. government, but the bigger story in the second half of 2012 may concern its growth at home. Within its Core Network Services (CNS) business, sequential enterprise growth in North America slowed from 3.7 percent to 1.7 percent, according to Canaccord Genuity. On a constant currency basis, Level 3 said its North America CNS revenues grew 1.1 percent. Level 3 is several months into its October 2011 acquisition of Global Crossing Limited.
"Although the North American enterprise market clearly weakened in the quarter for the company and for all others that have reported so far, Level 3 is strongly suggesting the company witnessed an unprecedented surge in 'signed orders' that management believes would reaccelerate sequential growth in the second half of the year," Canaccord Genuity analysts Greg Miller and Eric Chu wrote Wednesday in a daily letter. "This comes at the same time both AT&T and Verizon had less than enthusiastic things to say about the state of the enterprise communications market in North America."
If Level 3 can meet its growth guidance in the third quarter, Canaccord Genuity analysts anticipate that its stock will begin to recover. But if it's wrong, Miller and Chu claim the "the stock will surely retest its lows in the mid-teens, as investors brace for a repeat of the stock price performance following many previous deals."