Explanation of Level 3 Communications Volume & Price Surge (LVLT)

It has been hard to not notice the movement and trading activity in Level 3 Communications Inc. (NASDAQ: LVLT).  This set up an alert for us over at VOLUME SPIKE earlier this morning and we wanted to do some digging since this is one of the more stocks and frequently covered on our "10 Stocks Under $10" newsletter.

This was looking like a head-scratcher if you only looked at the headlines available on the surface and overlay them with the trading volume and movement from yesterday and this morning.   Yesterday we noticed a 2-times volume day with an 8% rise to $3.74.  Then this morning we have seen a sharp move with another 8% gain to $4.04 after 90-minutes of trading.  Shares have come back off a bit and are at $4.00 on lst look.  While the volume is already almost 17 million shares (24.6 million average daily volume) it isn’t off the charts for this stock.  So we wanted to dig further…..

There are two things that account for this.  First and foremost, a JPMorgan analyst has been reported as making positive comments with a $5.00 valuation.  We have not gotten that full note nor any of the details, so we are just treating that as hearsay until that is better described at the source.  There was a note yesterday that UBS had reiterated its "Neutral" rating.

More importantly, the company made a presentation yesterday at at the Oppenheimer Annual Communications & Technology Conference.  Some of the highlights are as follows:

• Expects to be free cash flow break even in aggregate for rest of 2008;
• Expects to be free cash flow positive for full year 2009;
• Core 2008 revenue growth expected 8% to 13%;
• Debt maturity schedule no issue until 2010 or beyond;
• Debt/EBITDA expected to be 6.6X for 2008, down significantly from last three years.

At the end of April this was under $3.00 and it was under $2.00 at the end of March.  This is also the first time the stock has seen north of $4.00 since October 2007.  With this being a 6-month high, expecting some profit taking might be prudent until we are closer to more new data from the company or until we get any game changing calls from analysts.

Jon C. Ogg
June 4, 2008