Reasons why you should consider buying Level 3 (LVLT) :
1) The current stock price for Level 3 is just $1.08. It should be much higher given the fact of the many recent revenue generating contract wins and direct open market stock purchase from a Level 3 insider. In a recent form 4 filing dated August 10th, 2010, an insider buy of 100,000 shares at $1.14 on the open market. There hasn't been a direct insider buy in many years. This is great to see as this insider clearly believes Level 3 is undervalued.
2) Several Analysts have raised earnings estimates for Level 3 after the recent earnings report. Analyst D.A Davidson has a buy rating while most have hold ratings. D.A Davidson analyst expects sales and EBITDA momentum to turn positive with increased wholesale bandwidth demand. Large enterprise and government demand is also starting to increase. $2.00 target price is based on a 9.3x multiple on 2011 EV/EBITDA estimate. Oppenheimer said, "LVLT will benefit from explosive growth of wireless data traffic". I expect more analysts will upgrade level 3 to buy following D.A Davidson.
3) Level 3 is now clearly taking market share from Akamai Technologies (AKAM). Dan Rayburn, Principal Analyst with Frost & Sullivan commented that Hulu is “passing serious traffic” to Level 3.
4) Institutions have been buying more shares of level 3. Gurufocus notes: Longleaf Funds’s Mason Hawkins just reported his second quarter portfolio holdings.
Mason Hawkins thinks that the market is undervalued. The price to value ratio of his funds are at lows. Therefore he did a lot more buying than selling in the second quarter. Longleaf funds run relatively concentrated portfolio.
According to the most recent filings of his investment company, Southeastern Asset Management, Mason Hawkins owns 40 stocks with a total value of $19.8 billion. Mason Hawkins added to his holdings in Level 3 by 4.86%. His purchase prices were between $1.11 and $1.72, with an estimated average price of $1.37. The impact to his portfolio due to this purchase was 0.12%. His holdings were a whopping 484,231,646 shares or a 32% stake in Level 3 as of 06/30/2010.
5) Level has approximately 54,000 long-haul fiber route miles and 27,000 metro fiber miles spanning 190 markets in 22 countries. Cisco (CSCO) expects Internet traffic to grow sixfold in the next five years, especially in bandwidth-intensive areas such as video hosting. This makes Level 3's fiber optics prime real estate as it will be needed to satisfy the growing demand for bandwidth
August 18th, 2010:
Level 3 gets a a solid Government sector win, Level 3 has signed an agreement with the Social Security Administration (SSA) to provide wavelength services under the Networx Enterprise contract program.
Under the terms of the agreement, Level 3 will provide the SSA with multiple 10 Gigabit per second (Gbps) wavelength solutions to connect several of the SSA’s data center locations with the potential to expand to additional sites in the future. Level 3’s solution is designed not only to be a cost-effective offering, but to also meet SSA’s stringent network performance, scale, capacity and usability requirements.
“Level 3 is optimally positioned to offer government agencies critical communication services, given the high availability of our geographically diverse optical network paths and our custom-build network solutions,” said Edward Morche, senior vice president of Level 3’s Federal Markets. “This award from the SSA clearly demonstrates our ability to provide high-quality services that meet the government’s growing need for reliable connectivity and security.”
August 17th, 2010:
Level 3 Communications chalked up two more wins over the past several days in the content delivery segment. The company continues to prove out its return to revenue growth.
Victory in the gaming space with Nexon America. Telecom ramblings Rob Powell points out
But it wasn’t just for CDN services, but rather for a package that included IP transit in the form of a 10GigE port, wavelengths between the company’s datacenters in North America, and of course caching, download and origin storage in support of the company’s MMOG’s – that’s Massively Multiplayer Online Games of course. Nexon America’s portfolio of such games currently includes Combat Arms, MapleStory, Dungeon Fighter Online, Mabinogi and PopTag!, none of which I’m particularly familiar with. Globally, Nexon derives most of its revenues in Asia, particularly Korea, but has been working to increase its US presence – part of which has been to improve its network throughput and latency. Level 3 has shown staying power in the online gaming segment, especially where it can bundle other IP and transport products and this one typical such deal.
And late last week, Level 3 also announced it had been selected by Zalando GmbH for CDN caching services. Zalando is an online retailer that sells, amongst other things, stuff like shoes, jeans, and beauty products. With Level 3′s caching services they will be speeding up their website and reducing the IP traffic to their origin servers.
Many analysts expect the general markets to rally more than 10% by the end of this year. I believe before 2011 Level 3's stock price should be trading more than 50% higher and test the prior 52 week high of $1.77 set back in mid April of this year. Institutions now hold 75% of Level 3 and insiders hold just over 15%, so 90% of the float is long. Short sellers are holding about 14% therefore, a short squeeze is due. Investors buying level 3 now are getting a huge bargain. I see very low downside risk with tremendous upside reward.
Disclosure: Long LVLT, AKAM and CSCO