Verizon, Sprint, Level 3 Get Financial Beatdown

By Craig Galbraith Comments
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**Editor's Note: Click here to see how some of the biggest names in communications fared in Q3 2012.**

Some of the optimism surrounding communications stocks is waning.

Verizon stock had fallen a little more than 1 percent as of 1:35 p.m. ET on Monday after investment bank UBS downgraded it from "buy" to "neutral," citing reduced expectations for profit this year. UBS analysts cut their price target from $48 to $44 per share, just a dollar higher than where the stock currently sits.

The news was the same for Sprint to which UBS tagged a downgrade, also from buy to neutral – although keeping its price target at $6 per share. The bank said Sprint will "remain range bound in the near term given our expectations for lower Q4 profitability."

While Sprint stock had fallen more sharply on Monday – down 3 percent as of 1:35 p.m. ET – there was some good news. UBS said it expects America's third-largest wireless carrier to successfully close its purchase of spectrum-rich broadband provider, Clearwire, despite some of the uncertainty surrounding it.

The glum news from UBS follows last week's report from D.A. Davidson & Co., that brought Level 3 Communications down a notch. The financial services firm downgraded Level 3 stock from buy to neutral, despite a generally positive outlook for the company.

β€œOn its Q3 call, LVLT noted orders were in line with the record level in Q2, and reiterated its guidance for higher CNS sales in Q4 and an overall EBITDA gain of 20%-25% for the full 2012 year, the firm's analysts said, according to Benzinga. "We are forecasting Core Network Services (CNS) of $1.417 billion in Q4, total sales of $1.6 billion and EBITDA of $400 million. We expect U.S. Enterprise sales to grow 2.5% sequentially and 9%-10% year-over-year (YoY). Latam Enterprise sales are also expected to be strong with 10% or more growth YoY. Latam and U.S. Enterprise sales together represent ~55% of total CNS sales and 48% of total sales."

The company's debt, in the $8 billion range, certainly weighs on its outlook. Davidson reiterated its target price of $25 for Level 3. The company's stock was $23.48 per share as of 1:45 p.m. ET on Monday, down a dollar from the market's close on Tuesday, just one day before the negative report surfaced.

Not all news has been bad on the communications financial front over the past few days. Zacks Investment Research maintained its "neutral" recommendation for Windstream on Monday, highlighting a "strong operational base that will drive growth in business and consumer channels with the addition of high-speed Internet customers and enhanced promotional strategies," NASDAQ reported.

The firm did, however, warn that competition, a diminishing wholesale business and other factors are keeping it from being more bullish on the stock, which was virtually unchanged on Monday at 1:50 p.m. ET.

Follow senior online managing editor @Craig_Galbraith on Twitter.

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