Salomon Smith Barney upgraded Level 3 Communications ( LLL ) to buy from outperform.

Analyst George Shapiro says the upgrade follows a 24% sell-off over the past several weeks --11% in the last three days. He tied the sell-off to concerns about a budget surplus erosion impacting defense spending, as well as associating Level 3 with telecom weakness. He notes the stock trades at market multiples to 2001 earnings, and at a 7% discount to 2002 earnings. He says 2002 fair value/EBITDA of 8.5 times is around Lockheed Martin's level, yet says Level 3 has greater growth prospects.

Shapiro sees $2.93 2001 EPS and $3.49 for 2002. He is confident in his $0.58 Q2 EPS estimate, which is in line with consensus. He has a $94 target, which represents a 30% premium to market.