The analyst believes that Level 3 is the best pure-play on thematic and cyclical growth trends within the broadband infrastructure segment.
“While we still believe there is a decent risk of a mis-step on merger integration in first half 2015, we feel the risk of not owning the stock if the company executes well is too grate, as the 12-month upside of 18.6 percent is higher than most of our other Outperform-rated names (excluding Sprint),” Smithen wrote in a note to clients on Wednesday. “Moreover we have spent more time with management understanding the integration plan for TW Telecom and believe that Level 3 management has set conservative cost-savings targets.”
Level 3 agreed to acquire TW Telecom in a stock and cash deal valued at $7.3 billion in mid-June.
Related: Level 3, TW Telecom Acquisition Call Summary
Smithen believes that the integration of TW Telecom will prove to be easier to accomplish than previously expected due to its lack of international assets and close proximity to Level 3.
Smithen recommends investor begin initiated positions in Level 3 following the completion of the SEC and FCC comment periods. The analyst sees consensus figures rising “sharply” as only a few other firms have published pro forma estimates and most of those appear “too low.”
Unlike Akami Technologies, Level 3 is not widely held by growth investors while sell-side Hold ratings outweigh Buys by a factor of two to one, according to Smithen.
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