Key Points
Lumen recently completed the sale of its consumer fiber-to-the-home business.
However, the transformation has made the current state of the company unclear.
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Investors have long moved away from Lumen Technologies (NYSE: LUMN) stock. While it has an extensive fiber network that spans the globe, its customer base of landline telephone customers and cable TV subscribers turned off investors, and a pivot to fiber internet, enterprise networking, and cloud services was not turning the tide.
However, the company has found a niche in today's technology world, offering connectivity to AI data centers, and Lumen's management has begun to reorient the company in that direction. Is that enough to rescue the communications stock? Let's take a closer look.
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Lumen's transformation
Lumen began its transformation in 2024 when it signed an agreement with Microsoft for private connectivity fabric (PFC), which helps data centers increase bandwidth capacity and reduce latency. Other large tech enterprises have since followed.
Additionally, it completed the sale of its consumer fiber-to-the-home business to AT&T, giving Lumen a $5.75 billion cash infusion. Most of that cash will retire $4.8 billion worth of what it calls "super priority debt." With that, the company said its deal has reduced interest expenses by almost 45% from 2025 levels.
The state of Lumen now
As of Dec. 31, Lumen reported more than $17.3 billion in long-term debt, a heavy burden for a company that had a negative book value of $1.1 billion. Thanks to the deal, the debt is now under $13 billion. While it will presumably have a positive book value now, the balance sheet remains heavily strained.
Moreover, the deal offloaded over 1 million fiber customers, accounting for approximately $750 million in annual revenue. In 2025, revenue fell 5% to $12.4 billion, and not having that business presumably reduces revenue by an additional six to seven percentage points. Also, with almost $4.4 billion in capital expenditures (capex) spending, its free cash flow was just $367 million.
That also means that its investments will likely take time before they start to improve the company's financials. At a rock-bottom, price-to-sales (P/S) ratio of 0.5, speculative investors may see a reason to take a chance on the stock. Still, the stock plummeted 19.4% last month and has fallen further in March. With the company in flux, it is difficult to get a good read on how one should value Lumen Technologies stock.
Should I buy Lumen Technologies stock?
Given the state of Lumen, investors should continue to treat it as a speculative stock. Indeed, pivoting into AI and selling its consumer fiber business to reduce debt creates potential for a rebound.
However, the company's debt burden remains heavy, and the sale of that business will probably reduce revenue in the near term. Thus, its journey back to financial health has really just begun. Until investors see some signs that the company is further on the path to recovery, they should probably stay on the sidelines.
Should you buy stock in Lumen Technologies right now?
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
