Level 3, Looks Good If Investors Ignore The Compeition

Stocks:  (LVLT)(VZ)(T)

Level 3 is looking good. The video revolution is filing the company’s pipelines with heavy duty internet traffic. The stock is up to $5.65, making it a double over the last year.

But, even Level 3 excecuties admit that current traffic would have to increase a great deal to sharply improve earnings:

As The New York Times points out: "Level 3’s management acknowledged to a group of investors last week that even though traffic from Internet video is huge and growing fast, it is at least two years away from becoming a large revenue contributor." Then there is the $6.8 billion in debt LVLT has. Industry analysts say that there is still too much capacity for internet traffic and as the company moves into voice traffic it comes up against AT&T and Verizon. They are not likely to let that business go easily and do not have LVLT’s balance sheet issues. They can afford to drop prices.

Cash flow from operations at Level 3 has only been $30 million over that last year. That would have to improve several fold to allow the company to handle its debt.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.