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Level 3 Communications, Inc. (NYSE:LVLT) is the leading IP Upstream carrier, transferring terabytes per second around the globe. I am now heavily investing back in the stock for the fund I manage. The company is at a huge turning point and I expect it to test $2 within the next six months.

Yesterday, Level 3 announced that it has been selected for a three-year deal to serve as a primary content delivery network (CDN) provider for Netflix, Inc. (NASDAQ:NFLX) to support the company’s streaming functionality and storage for the entire Netflix library of content. As a result of the deal, Level 3 has accelerated plans to further invest in its CDN capacity. Level 3 will double its storage capacity and add 2.9 Terabits per second (Tbps) of globally available CDN capacity, which is in addition to the 1.65 Tbps that was deployed in the third quarter of 2010. The CDN augment will provide the headroom needed to meet current demand requirements from Netflix and accommodate future growth. Netflix says its subscriber base will exceed 19 million in North America by the end of this year and it expects more growth and international expansion in future years. It added 1.93 million subscribers in the third quarter to its existing 16.9 million. In addition to supporting Netflix for streaming movies and TV shows, Level 3 will store the entire Netflix streaming library of more than 20,000 titles. Over the course of November and December, the two companies will move the library to storage with Level 3 in preparation for serving traffic beginning January 1, 2011.

"Level 3's track record for delivery and network scalability were critical factors in our decision to work with Level 3 on a long-term basis," said Andrew Rendich, chief service and DVD operations officer with Netflix. "We've been impressed with their speed and consistency, and we feel confident in their ability to quickly scale to meet demand as more and more Netflix members watch instantly."

"One of the primary advantages of owning our network is the agility it affords -- we're able to scale, augment and, ultimately, better control the performance of our CDN," said Mark Taylor, vice president of Content and Media. "We're committed to ensuring that our performance consistently exceeds our customers' expectations, and we look forward to working with Netflix to serve their millions of streaming customers for years to come."

It's important to point out that Level 3 will be the primary network. Akamai (NASDAQ:AKAM) and Limelight (NASDAQ:LLNW) will continue to be Netflix partners but it's clear Level 3 is now the real winner on this deal.

Watch for analysts to raise earnings estimates for Level 3 along with rating upgrades. Analyst Jennifer Fritzsche of Wells Fargo & Co. says, “This win is likely to be meaningful to incremental revenue growth for the company, which Level 3 very much needs”. She estimates the agreement will be worth around 5 percent of Level 3’s revenue. I think 10 percent revenue growth is very possible with this deal on the basis of Netflix continuous customer growth. Analyst D.A Davidson has a buy rating with a target of $2.00 based on a 9.3x multiple on 2011 EV/EBITDA estimate. Oppenheimer said, "LVLT will benefit from explosive growth of wireless data traffic."

I believe when Netflix goes international taking on the rest of the world, Level 3 will be the major streaming provider. I expect the stock to see a 50% gain from the current price of $1.12 over the next 3 to 6 weeks. In April this year Level 3 hit a 52 week high of $1.77 and has been in a downtrend since then in part to news in March of this year when Netflix turned to Akamai as its primary digital-delivery provider, a move that didn't sit well with Limelight and Level 3.

StreamingMedia blog broke the story, indicating that Akamai would be charging Netflix just $0.015 per gigabyte for the first three or four months of the deal in exchange for handling at least 51% of Netflix's streams. That rate is a third of Limelight's rate and a fourth of what Akamai normally charges.

Now that Level 3 is back in bed with Netflix, I expect the stock price to trend back to the April 52 week high area. Investors could soon get more bullish news from Level 3 such as retiring the 2011 debt. Shorts sellers would be wise to cover and take a long position. Bullish option investors have been buying the $1.50 November calls. Trading desk talk is "Mad Money" host Jim Cramer is now liking Level 3, so will he make this public soon?

I recently sold my position in Sirius XM radio (NASDAQ:SIRI), locking in a 100% gain. Sirius has a current marketcap of 5.6B and trades at 2.1x sales of 2.66B. Sirius investors might want to consider buying Level 3 with a current marketcap of 1.87B and trades at just 0.47x sales of 3.65B. Institutions own 74% of Level 3 and insiders own 15.4% and have been buying at $1.05 to $1.14. Short sellers hold 19% of the float. Sirius insiders own 0.72%, institutions hold 25.6% and 4.6% of the float is short.

Disclosure: Long LVLT and NFLX.

Source: Level 3 Is Now Worth Buying Again