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Friday, September 08, 2006

Broadwing Feeling Some Love

This morning Broadwing (BWNG) is trading up over 4%, or $0.50, at $12.10 pre-market on relatively thin volume after Jefferies started it with a Buy rating and put its price target at $14.00. The note points to accelerated demand for bandwidth in its customer areas from video and VoIP roll-outs and increased usage on its long-haul and metro area networks.

Level 3 Communications (LVLT) was also started as a Buy at Jeffeires with a $6.00 target, and LVLT is trading up 2.9%, or $0.12, at $4.23 pre-market.

What is interesting this morning is that just yesterday there was an article in TheStreet.com from a guest writer named Cody Willard. Cody Willard is a hedge fund manager and guest writer (writes regularly) at theStreet.com as well as Financial Times and VON Magazine. He has appeared on Larry Kudlow's segment on CNBC numerous times. He was noting that while he has been short BWNG on several occasions in the last year, that is not the case now. He noted that ludicrous rumors are abound daily for technology companies about would-be mergers, but he notes that both BWNG and XO Communications, now XO Holdings (XOHO-OTC), are both potential merger candidates. XOHO now has a market cap of $826 million and has Carl Icahn in its fray. BWNG has a market cap of $1.02 Billion and has lost roughly 1/3 of its value from the peak earlier this spring. These were each noted as potential buyers or targets, so there is not exactly a direct path or one answer to the future. Regardless, it was worth the read.

It is hard to know if this brokerage call this morning has any premonition to it, but Jefferies is an investment banking and research firm we value and hold in a higher light than a typical brokerage firm. The writer of this article has also been very insightful in his field in the past. Regardless of personal opinion about journalists and trading rules and disclosures, he has been very informative on telecom and communications issues in the recent past and that is why we are noting this from yesterday as part of today's gains. The shares were also actually down $0.05 yesterday by the close in a weak market to $11.60.

It should be noted that BWNG and LVLT are leveraged stocks that have fallen into a "cult stock" status, meaning they attract high volume in trading any time there is news on the companies. As of last month BWNG had a 5.9 million share short interest (up from 5.83 million in July), which is about 7.6% of the float and about 3.8 days worth or trading volume. LVLT had about 84.8 million shares in its short interest (up from 81.5 million in July), which is about 8.3% of its float and about 3 days worth of trading volume.

Jon C. Ogg
September 8, 2006
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