LVLT - Downgrading to Underweight Based on Execution Issues

"Over the past few quarters, LVLT has done little to reassure investors that its acquisition strategy is working. In fact, our industry checks indicate that the company will make substantial cuts, including in LVLT’s growth segments. In our view, the company has struggled to integrate its recent string of acquisitions and now growth and synergy milestones remain questionable...We did not perceive the tone on the 4Q07 conference call as encouraging and believe that there is potential for more downside to numbers. The company cited difficulty in provisioning orders and indicated that revenue and EBITDA will likely be lower sequentially in 1Q08.

The president and chief operating officer of LVLT, Kevin O’Hara, resigned March 10. In addition, LVLT announced that the company’s chief financial officer, Sunit Patel, will remain with the company in his current position...In our view, this management departure serves as further evidence of the turmoil at the company.

We are lowering our 2008 revenue and EBITDA estimates to $4.29bn from $4.30bn and $913mn from $1.02bn, respectively. For 2009 our revenue estimate decreases to $4.53bn from $4.65bn and our EBITDA estimate decreases to $1.11bn from $1.16bn...LVLT currently trades at 8.1x 2009E TEV/EBITDA versus 8.6x for Cogent (CCOI), 6.1x for Global Crossing (GLBC) and 6.8x for Time Warner Telecom (TWTC)...Applying TWTC’s 2009E TEV/EBITDA multiple of 6.8x, which is generous in our view given the strength of TWTC’s business relative to LVLT’s, to LVLT we arrive at a 12-month price target of $1.00 for LVLT shares."