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Wednesday, July 26, 2006

Level 3's Level Quarter (LVLT)

Wall St. was toubled by Level 3's quarter results, which means that they don't appreciate how far the company has come.

The company's quarterly revenue was $1.53 billion, well above analyst's estimates. The stock fell about 7% to $4, but a few brave souls in the financial community still see the company's longer term potential. One of them is at CIBC World Markets: "Level 3 is facing a difficult six-month transition due to declines in legacy revenues, but its growth businesses IP transport and VoIP are performing well," said Timothy Horan, an analyst at CIBC. "We should begin to see positive operating leverage in 2007 and beyond."

The company reported a loss of $201 million, but about $40 million of that was due to an amended credit facility charge. However, the company had positive operating cash flow of $62 million. The company had very impressive growth in come of its large operating segments. Information services revenue grew from $504 million in the quarter a year ago to $695 million in the quarter just reported.

The company now trades down a third from its 52-week high of $6. With the company showing robust growth and positive operating cash flow, the stock should be moving up and not down.

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

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