David Klein

Value, growth at reasonable price, dividend investing, equity research
David Klein
Value, growth at reasonable price, dividend investing, equity research
Contributor since: 2010
Company: Investor Information Exchange
I'm also in 1st gear but taken a more cautious (or conservative) approach by writing puts with a strike price of $40. My analysis shows the stock is undervalued and I tend to be very conservative looking for large discounts to fair value in case any surprises pop up.
I only write the occasional article nowadays. Spent my time developing a personal program to analyze fair value, etc. I've only ignored it once when it signaled a sell when a stock went far past fair value. You guessed it, it was when $FTR soared past $8 about a year ago but I liked the dividend and held. Huge mistake. The funny part is I developed this program to take the emotion out of decisions. Fair value is now calculated as $5.4 with an entry target below $4.2 so its signaling a buy but I already own plenty of stock so I play it ultra conservative with puts. I'd actually be a little concerned if I was put at $4.
I worry about FTR's ability to keep customers. Cable just came to my street and when it comes to speeds its no comparison. I still have FTR as a backup but so far the cable service has been excellent.
We'll see what the future holds. Enjoyed the article.
Speaking of options just sold some May puts; strike price $4 for $0.45. Didn't expect it to fill but it went through immediately. Very small quantity since I own too much stock already but still a little surprising.
Thanks for the article, the real estate angle helped with my decision. I had an entry target below $35.2 and was lucky enough (if it doesn't continue to fall) to get it at 34.88; also sold Feb 35 puts for 2.19. I have a fair value calculated at $48.2.
I apologize if I missed it in the article but I did not see a fair value calculation. Do you have one?
Upbeat presentation by Sunit Patel - CFO at the UBS 43rd Annual Global Media and Communications Conference in New York, on Dec. 8. http://bit.ly/1NVhVUa
Based on the comments it looks like their addressable market is more in the range of $175-200 Billion. Basically they expect growth to improve and margins to continue to expand. It's worth listening too if you follow $LVLT.
In the past there was a 1:15 reverse split, new management was installed and the business model was changed. Do not remember the exact dates off hand.
That would be nice but I'll be satisfied with the FV in the article.
Hi Mark and I agree which is why there is value here regardless of the outcome. The numbers/projections ignore any positive outcomes.
Additional disclosure: Written puts for all stocks in this blog.
I switched to 10 and it was painless for me also. I was surprised how easy the switch went and 10 seems much better than the previous versions.
On the other side my daughter switched to 10 and her internet stopped working. Needless to say she is not pleased.
UPDATE: LVLT filed the 10-Q and the diluted share count is growing faster than projected. I've adjusted this to fit the current diluted share count. This is now built in to the interactive model.
( http://bit.ly/1kOXwAE ) This lowers FV to 66.2.
Diluted share count for the model is calculated by taking the total number of shares outstanding in the filing then adding the diluted shares listed under note (3) Earnings Per Share.
I'm not sure why the jump in the diluted share count but it is a concern. Hopefully they can get this under control. Maybe it's the result of the combining of TWTC, don't know at this point.
I believe integration will run into early 2016
Hi fanfare and thanks for the kind words; always enjoy your posts over on IV. Management noted it was CNS Wholesale in the CC: "Turning to Wholesale, CNS revenue grew 5.8% this quarter. In the quarter, we settled some disputes that led to an unusually strong performance in Wholesale. In the third quarter, we expect Wholesale CNS revenue to decline slightly year-over-year." although they may be referring to NA CNS wholesale which I believe would still lead to an overall decline.
Hi mg, first the WVS revenue should be ignored, why? LVLT has no intention of increasing this revenue and just mange it, eventually down to zero IMO. It's no longer a part of the business they want. CNS Wholesale has been declining for some time but this will end and possibly soon. The company is focused on Enterprise which is the majority of revenue and will account for a higher % going forward. The YoY TTM enterprise growth was close to 7%. Older articles explained why enterprise will gradually become a higher % of overall revenue. Don't get me wrong, presently I'm not calling for double digit growth down the road but higher single digit growth.
As far as pricing management said they continue to see little change in the overall pricing environment. Part of the problem has been currency exchange rate which I estimated to be about 47m this Q no small number but I'm sure you know currencies will eventually find equilibrium if not reverse down the road and gain back some strength but we can only speculate when it comes to exchange rates.
I believe PE's are tied to EPS CAGR's not top line and long term we are looking at a CAGR over 20% for EPS.
I think Storey said it best when it comes to integration and revenue growth: "As we continue the integration of our products, networks, and systems, we're laying the foundation for initiatives that are key to driving future profitable growth, making it easier for customers to do business with Level 3 while also optimizing our cost structure creates more compelling offers in the market."
We'll see but we won't really know until 2016 when integration is complete.
Hi mg, Now that LVLT is digesting TWTC I'm not sure I'd agree that it is far too fragmented. I think LVLT's ability to become a cash generating machine without another acquisition is well established (well according to me); that said I'm no expect.
I think the probability for LVLT to exceed top line expectations after the integration is complete (1st half 2016) is far higher than the reverse. Just another few percentage points push long term CAGR's for FCF and EPS substantially higher and they sit at double digit CAGR's today.
Another metric that has the same affect as increasing growth is margin expansion so even if revenue growth remains as I have projected as of this article & margins continue to expand above my projections FCF and EPS CAGR's will be pushed even higher.
I was surprised at the growth in gross margins and now wonder how high they can go. Previously I had margins topping out at 66.5% over the next several years and they are about there today. The other surprise was WS margins are now on par with ENT margins.
My updated analysis has margins topping out at 68% thru 2019 but my gut tells me this is conservative. Bottom line margin expansion magnifies the single digit top line growth.
No, only because we already know what this years D&A is and can model accordingly. I had 290m projected for Q2 and it came in at 288m. Although full year 2015 should come in at about $1,160. From here we can get an idea what the future holds. My analysis has this built in going forward.
I'm working on an updated article but it takes me a little time to put everything together. Hopefully I'll submit something this week, next week at the latest.
I've followed this stock over the years after it was brought to my attention by SeattleGoldMiner. That said I do not own the stock but agree there is room for growth while the dividend provides support on the downside. I just ran my "lack of" in depth analysis and see a possible FV of $11.10. All this assumes a healthy long term growth rate for FCF and EPS going forward.
TTM income growth from operations before income taxes (based on management reporting) has gone from negative a year ago to extremely positive over the last 3 quarters up to 1Q15. I have been disappointed with FCF through 2014 but 1Q15 showed a very strong uptick. Whether this is an anomaly or trend is to be seen.
I have done some tracking vs what I would call an in depth analysis so take my opinions (or FV) with a grain of salt. I have kept track of some metrics by quarter to graph progress or lack thereof. If anyone wants it (A simple Excel spreadsheet) just send me an email and I'll send you a copy. No analysis just historical data tracking.
Before being asked why I do not own the stock, my answer is I'm very conservative and require a large discount to FV plus I have other another stock I think has more potential but I would be a buyer here in any correction that gives me the MOS I seek.
I should note the S&P earnings growth trend is 7%. If I were to over-ride the trend and use say 5% earnings growth going forward the S&P growth from Fridays close would look like:
5 Year: CAGR range (0.9%) to 3.4%; midpoint 1.4%
10 Year: CAGR range 2.0% to 4.2%; midpoint 3.2%
This article was picked for the SA's weekly "Outstanding Performance Award". The Performance Award Case Study is at: http://seekingalpha.co...
This week's SA Award winners:long idea on Level 3 (LVLT) @ http://bit.ly/1IghYBd
LVLT is up over 100% since this article was published; the first article since I made LVLT the focus stock on my website. In response I’ll try to summarize my latest thinking in this comment. First congrats to anyone who took the advice in the article and used the remainder of 2013 to accumulate the stock.
Although the article called this “The Hidden Story” it’s not as well hidden today from the general investment community but it’s still relatively unknown to many. I’ve noticed a few other positive articles recently on SA and a few other publications however this story is still unfolding, i.e., still in the early stages. My more recent article lays out a more complete picture. (http://seekingalpha.co... )
CNS Wholesale revenue has been declining (as expected) but may be at an inflection point and starting to flatten out and possibly show slight growth in the near future. The largest segment (Enterprise) will continue to become a larger slice of the pie overtime and push gross margins higher. Level 3 has scale, i.e., they can grow revenue with minimal increases in operating costs (e.g., administrative, sales, etc.). The growth that flows through to free cash flow, EBITDA and earnings is substantial.
Fair value is estimated at $73 as of this writing. Fair value is reflected in an interactive model publically available at: http://bit.ly/1kOXwAE
where you can change various rates for revenue growth, Capex etc., which adjusts fair value. I think the CNS revenue growth rates are easily achievable and think the potential is there to exceed these single digit rates. Finally I’ll repeat this idea is a multiyear investment horizon not a short-term trade and I believe this investment will continue to reward investors with large returns over the next several years based on yesterdays close.
Very nice article and it's no surprise to some I agree with the potential for LVLT. My own research projects 2019 EPS at $5.77+- based on single digit top line growth (which is in line with your comment "Therefore, the upside would be much higher.") although I hope I'm wrong when it comes to only single digit top line growth. If the market ever thought they might hit double digit revenue growth the stock would take off although results and management still point to single digit CNS revenue growth.
At this point I think the downside has more to do with the market than LVLT, i.e., LVLT could take a large hit in any correction since it pays no dividend and has a high debt load although any hit not related to the fundamentals would be an opportunity IMO.
That said I am very long LVLT at this point.
Hi Maddogbucko, the company separated from Kodak 21 years ago. They are two different (independent) companies so I would say the pensions for each company are unrelated. That said I'm not in the legal profession so you may want to contact a lawyer to see if you have any redress.
Sunit Patel, executive vice president and chief financial officer said today at the Jefferies 2015 Global Technology, Media and Telecom Conference that LVLT could start returning $ to shareholders next year if they don't see opportunities for high return on investment. He did not say in what form; buybacks, dividends (or I missed it), although I believe a large part of the 2016 FCF could go to servicing debt. Of course all this assumes high return investment opportunities do not use the cash instead.
- Webcast accessed from: http://bit.ly/1ctlRu0
The updated income statement is posted
Hi professor, no it is not. The formula summed all four quarters when it should have averaged them. Thanks for catching that, I'll try and get SA to change it. My current diluted share count based on the recently filed 10-Q is 372m. The average count used for year end 2015 is 374.
2015 2016 2017 2018 2019
Basic 349 356 363 370 377
Diluted 374 378 382 386 390
I've updated the model since the article (increase in debt extinguishment) so some EPS numbers will be modified but not enough to change projected numbers, assuming I can upload the new table.
Thank you Rubbergutz.
Hi Ted and thanks for commenting. Another way to look at it is EPS CAGR from 2015-2019 is over 40% which should generate a very high PE. If I applied a modest PE (say) 18 to 2019 EPS then discounted this back to today using a discount rate of say 8% would produce an attractive FV.
FCF CAGR is over 34% over the same period although not said in the article will eventually see the company start returning cash to shareholders sometime over this period; could be buybacks or dividends or both which adds to the attraction. I believe management has actually started to mention this as a possibility just did not put a time frame on it.
That said I'm not saying you are wrong and I'm right, after all differing views is what makes the market. Fact is I don't know who will turn out to be right longer term which is why I update my analysis every quarter. This is just another view but the picture continues to improve based on my analysis over periods at the end of the article.
I will note that LVLT could take a large hit in any correction since it pays no dividend and has a high debt load although any hit not related to the fundamentals would be an opportunity IMO.
We'll see what future quarters hold.
Thank you GRADPKS. Does is the PKS in your handle stand for Kiewit?
Thank you, the kind words are appreciated.
Any changes in EMN fair value going forward will be updated on this webpage:
Hi FcFrag and thanks for commenting. I think the reason it could be low is people may see it as dead money for 2015 due to the hedges and the uncertainty of how low oil may go or how strong the dollar will become. The big question is do we believe management when they say the hedge pressure will subside in 2016. I could not find details on the actual derivative contracts and my guess is they will not make them public so there is a little bit of faith here that they being straight with shareholders; also when it comes to acqusitions being accretive, if not then those old lows will become a reality pretty quick otherwise in a year the stock could provide good returns. We'll see.
Those premiums are pretty good, I sold those puts back in Feb.