An example is Level 3 Communications (NYSE:LVLT), which is among the largest positions in the Partners, Small-Cap and Global Funds. This fiber network provider reinvests its excess cash into high margin growth rather than paying a dividend, has a beta of 1.5, and only trades at an adjusted 8x earnings before interest, taxes, depreciation, amortization (EBITDA) for expected FCF growth in the teens. By contrast, AT&T and Verizon have dividend yields over 4% with betas of 0.6 or less and trade at 7x EBITDA, with growth prospects limited to mid-single digits. Likewise, FedEx, another large holding in the Partners and Global Funds, shares a duopoly with UPS in the U.S. ground business, yet trades at a 13.9x price-to-earnings ratio (P/E), while UPS is at 18.0x. FedEx has lower labor costs and more growth potential as it takes share from UPS and integrates its recent purchase of TNT. FedEx has a dividend yield of less than 1% and a 1.2 beta, while UPS has a 2.9% dividend yield and a beta of 0.7.
From Southeastern Asset Management's third quarter 2016 shareholder letter.
