Networking giant Level 3 Communications
But the stock was always popular with the analyst crowd, scoring plenty of buy ratings and no sell calls. And on Friday, the stock jumped as much as 9.5% on the news that another Wall Street heavyweight likes the company's prospects.
Goldman Sachs opened coverage of Level 3 with a buy rating (don't you love that "new car" smell?) and a $30 price target, about 50% above Thursday's closing price.
The firm likes where Level 3's bet-the-farm merger with Global Crossing is taking the two-headed beast. According to the research note, that deal "improved [Level 3's] balance sheet and places the company on a path to sustainable [free cash flows] for the first time in its history." Goldman sees an "inflection point" drawing closer, and wants to capitalize on that singular event.
Support from a Wall Street slugger of Goldman's caliber sure is market-moving news. However, I can't say that I agree with this analysis.
Looking at the same second-quarter report that triggered Goldman's burst of enthusiasm, I reached the opposite conclusion: Level 3's cash flows are growing weaker and not stronger, and certainly don't seem destined to become sustainable any time soon.
Investing in Level 3 today is a risky turnaround bet with a highly uncertain payoff. Moreover, the typical troubled telecom at least pays out generous dividends to make its risky bets worth your while: Witness Frontier Communications
But with negative cash flows, Level 3 simply can't afford to take that route. And unlike Goldman, I don't see that sorry situation changing for the foreseeable future.
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