LUMN

Lumen Technologies (NYSE:LUMN): Value Opportunity After Debt Restructuring?

Lumen Technologies’ (NYSE:LUMN) recent debt restructuring deal may have given it much-needed time to reinvent itself. Although recent financial results revealed a decline in revenue and adjusted EBITDA in the first quarter, Lumen’s guidance for 2024 implies potential growth. The stock is down over 90% in the past three years and is undervalued compared to its industry peers.

It is a speculative endeavor, but a potential turnaround would likely catalyze the stock higher from current levels, making it potentially enticing for investors willing to take on the extra risk. More risk-averse investors may want to observe safely from the sidelines and reengage when more promising trends develop.

Lumen’s Pivot to Fiber Broadband

Lumen Technologies, a facilities-based technology and communications company with a legacy in the telecom industry, has been diligently working to redefine itself in the face of rapidly evolving digital landscapes.

There has been a significant surge in Lumen’s performance, particularly in broadband, in the first fiscal quarter. The revenues from their fiber broadband have shot up by 12% year-over-year, reaching $170 million, primarily driven by increased subscribers. The first fiscal quarter saw Lumen’s highest net subscriber additions (+36K), signaling and supporting the company’s expansion plans in this space.

In Q1’24, Lumen added an impressive 129K new locations to their fiber broadband network, totaling 3.8 million. Over the past year, more than 500 thousand new locations have been added to its fiber broadband platform, marking a growth rate of 16%. Moreover, the contribution of broadband to Lumen’s top line has become increasingly crucial. For instance, in Q1’24, the segment accounted for 35% of the total broadband business.

Lumen’s Recent Financial Activity

Lumen’s financial performance for Q1 2024 was below expectations. The company’s revenue missed the mark by $100M, reaching $3.29B, a 12.0% year-on-year decrease. Adjusted EBITDA for Q1 2024 was $977 million, a drop from the $1.251 billion achieved in the same period in 2023. Non-GAAP EPS of -$0.04 fell short of expectations by $0.08.

A quarter highlight was the generation of free cash flow, which totaled $518 million, compared to a negative $75 million in Q1 2023. The company also strengthened its balance sheet by completing transaction support agreement (TSA) transactions and addressing over $15 billion of debt and commitments. Lumen also extended over $10 billion of its due maturities to 2029 and beyond, securing over $2.3 billion in new liquidity.

Despite the disappointing results, management has reiterated its full-year 2024 financial outlook, predicting the first quarter to be the low point for adjusted EBITDA.

What Is the Price Target for LUMN Stock?

Analysts following the company have taken a cautious approach to the stock. Based on their recommendations and price targets, Lumen Technologies is rated a Moderate Sell overall. The average price target for LUMN stock is $1.25, representing a 0.79% downside from current levels.

The stock has continued its downward slide with over 26% in the past 90 days. The shares trade at the low end of their 52-week price range of $0.78-$2.36 and continue to show negative price momentum, trading below the 20-day (1.29) and 50-day (1.35) moving averages.

The ongoing slide in price has pushed the shares into value territory. The P/S ratio of 0.08x favorably compares to the Telecom Services industry average of 1.25x. This level of value has attracted a heightened level of insider buying activity, typically a positive sign.

Final Thoughts on LUMN

Lumen Technologies’ attempts to reinvent itself show potential, particularly in its fiber broadband segment. While its Q1 2024 financial results were below expectations, its debt restructuring deal and the successful generation of free cash flow offer hope for a transformative journey ahead.

The stock has significantly declined over the past few years but presents a potentially value-oriented opportunity for risk-tolerant investors willing to ride the potential turnaround wave.

Disclosure

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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