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John Griffin Reduces His Holdings with Level 3 Communications Inc.

July 05, 2011 | About:
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teddycx

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John Griffin of the hedge fund Blue Ridge Capital has a stellar pedigree, having been formerly considered the right hand man to legendary investor Julian Robertson. As one of the "Tiger Cubs" who worked with Robertson at Tiger Funds, Griffin employs a long-short portfolio at Blue Ridge. On the long term, his firm focuses on companies that can produce a superior return over a three- to five-year period. On the short term, Griffin targets stocks that will underperform over a one- to two-year period under the assumption that they will not make it in a poor economic environment. The shorts improve the portfolio as they can go to zero in a poor market while the longs will bounce back based on the strength of the underlying companies. This long-short perspective affords Mr. Griffin the luxury of being relatively unconcerned about the macro environment. He most recently reduced his holdings in Level 3 Communications Inc. (LVLT) by 14.97%.

Level 3 Communications Inc. (LVLT)

Five years ago, Griffin held just under 4,000,000 shares in Level 3 Communications Inc. When the price of LVLT grew from $4.30 in the third quarter of 2006 to $6.20 by the end of the first quarter of 2007, Griffin added to his holdings, totaling more than 70,000,000 shares by the end of the third quarter of 2007. Unfortunately for Griffin, prices began falling just before he finished adding to his holdings, and he sold out in the first quarter of 2008 when prices dipped to an average of $2.58.

For a while, LVLT stock remained steady at just above $3, but it plummeted towards the end of 2008 to under $1. Since then, its stock has steadily risen in price. In the third quarter of 2010, Griffin decided to buy the company again, purchasing 7,785,000 shares at an average price of $0.96.

By the end of the first quarter of 2011, Griffin added to his holdings another 10,520,000 shares at an average price of $1.29. In the second quarter of 2011, he added another 79,500,000 shares at an average price of $1.89 to more than quintuple his holdings. Most recently, he sold almost 15,000,000 shares of LVLT at an average price of $2.15. The stock is now trading for $2.48. As of today he owns more than 83 million shares.

Level 3 Communications is an international communications and information services company. It constitutes one of the largest Internet backbones in the world and is one of the largest providers of wholesale dial-up service to ISPs in North America. It is the primary provider of Internet connectivity for millions of broadband subscribers through its cable and DSL partners. The company offers a wide range of communications services over its mile broadband fiber optic network including Internet protocol services, broadband transport and infrastructure services, colocation services, and patented soft-switch managed modem and voice communication services.

Recent quarterly statements show that Level 3 Communications has seen a slight increase in revenue from $904 million at the same period last year to $914 million now, but net income remains unchanged and the company maintains a $4 million operating loss. Free cash flow was a negative $115 million since the last quarter as a result of an increase in net cash interest payments as well as use of cash for working capital. P/S values for LVLT look to be on a slight increase but are roughly in range of their ten-year historical values. Quarterly earnings per share also remain constant at just under zero.

On April 11, 2011, Level 3 announced that it has entered into a definitive agreement to acquire Global Crossing Limited in a tax-free, stock-for-stock transaction. According to their business outlook, Level 3 Communications expects free cash flow "to be roughly breakeven for the remainder of 2011 in aggregate," "stronger sequential revenue growth compared to 2010," and the incurrence of "integration planning and transaction-related costs" as a result of the Global Crossing acquisition.

Other Recent Activity

As of 03/31/2011, two other gurus held positions in LVLT: Prem Watsa of Fairfax Financial Holdings, Inc. currently owns 139,276,421 shares of LVLT and Mason Hawkins of Southeastern Asset Management owns 472,442,987 shares. Meanwhile, two gurus sold out: Kenneth Fisher sold out all 12,388 of his shares for a rough gain of $.32 per share while Mario Gabelli sold out all 40,000 of his shares for an average price of $1.29. CEO James Q. Crowe sold 63,850 of his more than 9,000,000 shares while Executive VP and CFO Sunit S. Patel sold 67,900 of his almost 2,000,000 shares, both at an average price of $1.42.

This is part of GuruFocus Real Time Picks report, which reports the stock trades of Gurus within the last few days. For more information, go to Real Time Picks.

Rating: 2.4/5 (8 votes)

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