Source: Level 3.

Shares of communications services veteran Level 3 Communications (NYSE:LVLT) have set brand-new multi-year highs this week. The company's fourth-quarter results, reported in the early morning hours on Wednesday, left analysts flat-footed once again, sending share prices as much as 5.7% higher that same day.

Is this a sustainable surge, or is Level 3 destined to fall off the radar soon? Let's have a look at the evidence from the fourth quarter.

Money machine
Going into the report, analysts were expecting Level 3 to deliver earnings of about $0.30 per share on $2.0 billion in total revenue. These estimates represented 23% year-over-year sales growth and a sixfold increase in earnings, so the bar was set fairly high.

Level 3 fell short on the top line, as total revenues stopped at $1.9 billion. On the bottom line, however, the company shone with adjusted earnings of $0.35 per diluted share. So, it was a mixed quarter in terms of simple numbers, but Level 3 followed through where it matters most.

And that's not all. The company has famously struggled to deliver positive cash flows throughout its operating history, but those days seem to be over. The year-ago period's free cash flows of $197 million declined to $163 million, but the full-year totals switched from $47 million of burned cash into $325 million in freshly generated bank balances.

Level 3 is becoming a predictable cash machine, which is a welcome change from recent trends. Management is aware of how important this change is to investors, and it made sure to drive home just how well the company is doing.

"From a Free Cash Flow perspective, 2014 was a transformational year for Level 3," said Level 3 CFO Sunit Patel in a prepared statement. "The company is well-positioned to generate sustainable Free Cash Flow going forward."

In 2015, for example, Patel expects to generate about $575 million of free cash flows, which would be 75% above 2014's trend-breaking levels.

Level 3 CEO Jeff Storey has been good for shareholders so far. Source: Level 3.

The company will manage it by growing EBITDA profits by about 14% this year, while keeping tight reins on Level 3's capital expenses. However, there's no word on how Patel and CEO Jeff Storey plan to manage top-line sales in 2015.

I'll note that Level 3 faced some currency headwinds in the fourth quarter, which made it harder to meet Wall Street's revenue forecasts. But it was a small currency effect, because Level 3 generates the vast majority of its revenue in the crucial North American market.

I suppose we should expect hit-and-miss sales out of Level 3 in 2015, while management focuses its efforts on bottom-line growth instead. If that means sacrificing some low-margin sales in exchange for wider profit margins, then that's just the way the cookie crumbles.

Delivering now and in the future
Level 3 investors are eating this up and looking forward to a whole new future. The management team's newfound fiscal discipline should serve shareholders well in the coming years, assuming they can deliver on their promises. At the moment, Level 3 owners can look back at a market-beating 70% return over the last 52 weeks, and an even wider 140% gain in 18 months.

Why am I looking 18 months back, of all possible timeframes? Because that's when Storey moved into the CEO office. This guy seems to be doing something right.

The stock does look pricey at current levels. Level 3 shares trade at an enterprise value to EBITDA ratio of about 14 right now, which is twice as high as long-distance networking rival AT&T (NYSE:T) and three times Verizon's (NYSE:VZ) ratio. It's true that investors are paying a premium for Level 3's high growth expectations, so you should consider how realistic Patel's projections might be before taking a position in this stock.

Encouraged by the progress since Storey took over the CEO post two years ago, but not quite ready to invest on this thesis, I just gave Level 3 a thumbs-up rating in our Motley Fool CAPS system. That way, I'll be ready to make a move if Level 3's shares lose some of their lofty pricing for no good reason. That happens all the time in this crazy stock market, after all.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.