DA Davidson Downgraded Level 3 Communications (LVLT) to Neutral on Valuation Risk, Cuts PT to $1.70

DA Davidson downgraded shares of Level 3 Communications (NASDAQ: LVLT) to a Neutral rating today, from its previous rating of buy, and cut its price target from $3.00 to $1.70.

The firm still believes that the company will close its merger with Global Crossing (Nasdaq: GLBC) in November. DA Davidson also suspects that the company will have over $300 million in synergies within the next three years after the merger.

The Neutral rating will remain on the shares until the of a valuation compression is more discounted in the stock price. The firm still likes the stock for the long-term and notes that the revenue synergies may be larger than anticipated from the GLBC merger.

The company's debt to EBITDA ratio is currently at 7.7x on Q2 debt levels of $7.2 billion. DA Davidson suspects that the merger will drop the ratio to 5.6x.

For 2011, the firm forecasts EPS of ($0.44) with $3.768 billion in revenues. For 2012, EPS of ($0.41) and revenues of $3.877 billion.

For more ratings news on Level 3 Communications click here and for the rating history of Level 3 Communications click here.

Shares of Level 3 Communications closed at $1.66 yesterday.

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