Level 3 Communications (NYSE: LVLT) and FairPoint Communications (NASDAQ:FRP) are both telecommunications services companies, but which is the better investment? We will contrast the two companies based on the strength of their risk, earnings, analyst recommendations, institutional ownership, valuation, dividends and profitability.

Volatility & Risk

Level 3 Communications has a beta of 1.14, suggesting that its stock price is 14% more volatile than the S&P 500. Comparatively, FairPoint Communications has a beta of 0.58, suggesting that its stock price is 42% less volatile than the S&P 500.

Earnings and Valuation

This table compares Level 3 Communications and FairPoint Communications’ revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Level 3 Communications N/A N/A N/A $1.77 30.30
FairPoint Communications N/A N/A N/A $2.27 7.03

FairPoint Communications is trading at a lower price-to-earnings ratio than Level 3 Communications, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a summary of current ratings and recommmendations for Level 3 Communications and FairPoint Communications, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Level 3 Communications 1 3 0 0 1.75
FairPoint Communications 0 1 0 0 2.00

Level 3 Communications presently has a consensus target price of $60.16, suggesting a potential upside of 12.18%. FairPoint Communications has a consensus target price of $17.00, suggesting a potential upside of 6.58%. Given Level 3 Communications’ higher probable upside, equities analysts clearly believe Level 3 Communications is more favorable than FairPoint Communications.

Institutional & Insider Ownership

98.8% of Level 3 Communications shares are held by institutional investors. Comparatively, 88.6% of FairPoint Communications shares are held by institutional investors. 0.5% of Level 3 Communications shares are held by company insiders. Comparatively, 7.6% of FairPoint Communications shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Profitability

This table compares Level 3 Communications and FairPoint Communications’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Level 3 Communications 7.47% 5.52% 2.45%
FairPoint Communications -11.81% N/A -7.88%

Summary

Level 3 Communications beats FairPoint Communications on 7 of the 10 factors compared between the two stocks.

About Level 3 Communications

Level 3 Communications, Inc. is a provider of a range of integrated communications services. The Company’s operating segments include North America, EMEA and Latin America. The North America includes operations in Atlanta, Georgia; Littleton, Colorado; Miami, Florida; Montreal, Canada; New York, New York; Phoenix, Arizona; Pittsburgh, Pennsylvania; Southfield, Michigan, and Tulsa, Oklahoma. The Europe segment includes operations in Basingstoke, England; Crewe, England; Dublin, Ireland; London, England; Amsterdam, The Netherlands, and Paris, France. The Latin America includes operations in Colombia; Buenos Aires, Argentina; Caracas, Venezuela; Lima, Peru; Quito, Ecuador; Santiago, Chile, and Sao Paulo, Brazil. It offers optical, Internet Protocol, computing and storage technologies. It offers a range of communications services, including Internet Protocol (IP) and data services, transport and fiber services, colocation and data center services, security services and voice services.

About FairPoint Communications

FairPoint Communications, Inc. is a provider of data, voice and communications services to business, wholesale and residential customers within its service territories. The Company offers its customers a suite of services, such as Ethernet, Session Initiation Protocol Trunking (SIP-Trunking), hosted Primary Branch Exchange (hosted PBX), managed services, data center colocation services, high capacity data transport and other Internet protocol (IP)-based services over its fiber-based network. It also offers Internet access, high-speed data, and local and long distance voice services. It provides services, such as Data and Internet Services, which include optical, Ethernet, Ethernet virtual circuit technology for cellular backhaul and private line special access services. It offers Voice Services, which include Local Calling Services, Long Distance Services and 9-1-1 Services. It also offers Network Transport Services, Interstate Access Charges and Intrastate Access Charges.

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