Trade-Ideas LLC identified

Level 3 Communications

(

LVLT

) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Level 3 Communications as such a stock due to the following factors:

  • LVLT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $139.1 million.
  • LVLT has traded 1.2 million shares today.
  • LVLT is trading at 2.00 times the normal volume for the stock at this time of day.
  • LVLT crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on LVLT:

Level 3 Communications, Inc., together with its subsidiaries, operates as a facilities-based provider of a range of integrated communications services. It operates through North America, EMEA, and Latin America segments. LVLT has a PE ratio of 6. Currently there are 10 analysts that rate Level 3 Communications a buy, no analysts rate it a sell, and 6 rate it a hold.

The average volume for Level 3 Communications has been 1.9 million shares per day over the past 30 days. Level 3 has a market cap of $20.0 billion and is part of the technology sector and telecommunications industry. The stock has a beta of 1.54 and a short float of 1.5% with 1.70 days to cover. Shares are down 3.1% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates Level 3 Communications as a

buy

. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, expanding profit margins, notable return on equity, solid stock price performance and largely solid financial position with reasonable debt levels by most measures. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:

  • Net operating cash flow has significantly increased by 67.21% to $510.00 million when compared to the same quarter last year. In addition, LEVEL 3 COMMUNICATIONS INC has also vastly surpassed the industry average cash flow growth rate of 1.52%.
  • 49.68% is the gross profit margin for LEVEL 3 COMMUNICATIONS INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 6.04% trails the industry average.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. In comparison to other companies in the Diversified Telecommunication Services industry and the overall market on the basis of return on equity, LEVEL 3 COMMUNICATIONS INC has underperformed in comparison with the industry average, but has greatly exceeded that of the S&P 500.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • LEVEL 3 COMMUNICATIONS INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, LEVEL 3 COMMUNICATIONS INC increased its bottom line by earning $9.55 versus $1.24 in the prior year. For the next year, the market is expecting a contraction of 82.0% in earnings ($1.72 versus $9.55).

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