CenturyLink, Level 3 inspiring a bit of caution among analysts

corporate sign outside of an office park
CenturyLink is working to merge with Level 3.

The proposed combination of CenturyLink and Level 3 is continuing to gain regulatory approvals while eliciting yawns from the market.

Barclays said it remains cautious as it sees Level 3 gaining some stability with its customer accounts.

Barclay’s research note followed another two weeks ago from Cowen & Co., which said it expects a weak coming year from CenturyLink and Level 3.


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In between the two notes, CenturyLink was accused of fraudulent billing. Cowen published its note before the revelation, but Barclays’ published after and barely mentioned it.

Barclays said it conducted a deep dive on the merger, leading it to consider a “potential reset in expectations,” though the suggested reset appears modest.

The analyst firm expects CenturyLink to continue to experience “headwinds” in its consumer and legacy business—the reason CenturyLink needed the merger in the first place.

That of course depends on Level 3 offsetting whatever problems CenturyLink has in its legacy business. Barclays believes Level 3’s performance is ready to improve. The first wrote that “churn issues related to the SMB segment of Level 3’s Enterprise business have stabilized. We expect steady results from Level 3.”

Barclays believes Level 3 is still at risk, however. It must maintain a technological lead “to continue to offset declining, legacy business lines, execution risk, and increased competition in the small to medium enterprise segment.”

Barclays “reset” included only a slight revision of its price targets for Level 3. Barclays had a price target of $61; the reset lowered the target to $59. Barclays set the high end of its range at $67, based on the merged entity reaching its full potential. The low-end target is $52 should the deal fall through, if the merged entity doesn’t keep Level 3’s churn under control, or should customers and potential customers delay spending.

Separately, the CenturyLink and Level 3 have gained approval for their merger from another four of the states in which CenturyLink does business. The most recent to issue their blessings were Alaska, Colorado, New York and Pennsylvania. The two have several state and federal approvals they are still in the process of securing.

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