Level 3 Communications and the Long Road to Redemption (LVLT, NFLX)

Level 3 Communications, Inc. (NASDAQ: LVLT), a provider of broadband and wholesale communications services, has struggled mightily to meet an impressive set of challenges. If the company can get back on track as we saw in recent months, investors might have found the comeback king of corporate turnarounds.  A lot is going for the company, but it also has a long history of stagnation working against the progress as well.

In the latest development the company has moved to a address its capital needs with a $650 million refinancing package.  A source reported that Bank of America Corporation (NYSE: BAC) is arranging the seven-year refinancing package at an interest rate 4.25 percentage points in excess of the London interbank offered rate (LIBOR).

In earlier developments favorable to Level 3, Netflix Inc. (NASDAQ: NFLX) selected the wholesale data carrier to serve as a primary content delivery network provider for streaming functionality and to support storage for the entire Netflix library of content.  Level 3 announced simultaneously that it is expanding its network capacity as a result.

Level 3 noted that it will double its storage capacity and add 2.9 Terabits per second of capacity.  The 2.9T is in addition to the 1.65 Tbps that was just deployed in the third quarter of 2010.  Netflix has its millions and millions of subscribers in North America, and the real growth ahead may come from international expansion and its towers services in the years ahead.

Shares of Level 3 recently closed at $2.18 and its 52-week price range is $0.83 to $2.67.  The consensus target price of analysts representing eight Wall Street firms is only $1.99, but that is admittedly a small group of firms covering it and many have not updated coverage in quite some time.  In first-hour trading share prices posted modest gains in what went from a great up-day to a negative day in a hurry.

Level 3 has been making steps in teh right direction and its shares were on a serious run higher before the recent uncertainty took the wind out of its sails.

Jim Berdou