Did Level 3 Rally Too Much? (LVLT)

Level 3 Communications, Inc. (NASDAQ: LVLT) traded today as though it blew away earnings or scored a huge contract win if you looked at the share price gains on the stock and did not look at anything else.  The move was actually after the research team at Morgan Stanley raised its rating on the wholesale telecom and data carrier to Overweight from Equal Weight.  Today’s research call also set a price target objective of $31.00 per share based on capital spending coming under control, some margin expansion, and revenue growth.

So, after a gain of 12.5% to $23.51 we are curious if the move was too much of a move based just on an analyst upgrade.  The consensus price target objective from Thomson Reuters is $30.43, so the upgrade is not really out of the ordinary.  At $23.51 the 52-week range is $16.51 to $40.05 and that implies at least some potential upside if the Global Crossing deal keeps adding to it.

If the stock was up closer to its upper-end of a longer-term range we might be questioning this large move a lot more since it was just a research report driving the gains.  Now it just looks like an impressive move.  If you look at the chart from stockcharts.com, the 200-day moving average is up at $25.43 and the 50-day moving average is all the way down at $18.89.  If the bulls are in charge here, there may not be much resistance up to $25.50 or even $26.00 on the stock.

JON C. OGG