Over the next week 24/7 Wall St. will set mid-year price targets (June, 30, 2007) for the sixty most widely traded stocks. These targets will be based on past price performance, industry activity, forward projections of financial performance, outside analyst opinions, and research conducted for doing past articles on these firms. The price targets assume flat markets over the next six months. In other words, if the Nasdaq moved up 25% between now and mid-year, the target share price targets would probably be too low. If the market moved down by 20%, they would probably be too high

Level 3. (LVLT) Level 3’s stock may be the victim of its own success in 2007. Last year the stock moved from $2.75 to over $6.

The tale of the company is based on which of two stories Wall St. wants to believe. One is that the company’s debt is so large that LVLT cannot reasonably generate the cash flow to save the business. The other is that with broadband adoption driving huge bandwidth needs for video, voice and data, Level 3 will see a sharp improvement in cash flow and, with its higher stock price, can improve its balance sheet with shares that have more than doubled in value. JP Morgan is buying the bull case big time. It has just raised it targer price on the stock to $8.

Level 3 seems to buy a company a month. It recently bought part of Savvis and just closed it purchase of Broadwing. So much M&A activity along with a balance sheet that requires an actuary to read do make the company’s progress harder to track.

If the stock had not already doubled, it would be easy to see it driving higher. But, the air is already pretty thin up here above $6.

Factors that could drive that share price above forecast: If big telecom customers need to buy a lot of additional capacity of video and VoIP, the margin on LVLT’s bandwidth could rise.If cash flow improves, the debt the companies carries is not so scary.

Factors that could drive the shares below forecast: Level 3 needs to have a nearly perfect year given how much the price rose in 06. Even a small miss compared to expectations could be punishing.

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

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