What happened
The weekend couldn't come fast enough for telecom stock Lumen Technologies (NYSE: LUMN). The company's shares took a nasty hit of more than 6% on Friday following a significant price-target cut from an influential bank. That decline was notably steeper than that of the S&P 500 index, which dipped by 0.1% on the day.
So what
The cutting party was no less a financial institution than Citigroup. The big bank's analyst Michael Rollins was the man behind the slice. He trimmed his Lumen price target to $2.50 per share, a chop of nearly 30% from his previous level of $3.50. In doing so, he maintained his sell recommendation on the stock.
His reasoning wasn't immediately apparent, but it's in line with general investor and analyst sentiment on the company these days. Lumen kicked off May by reporting first-quarter results many observers and shareholders found wanting -- not least because the telecom saw significant top- and bottom-line declines on a year-over-year basis. It also missed the consensus-analyst estimate for profitability.
Following the earnings release, several researchers trimmed their price targets on Lumen. Among this crowd was Citibank peer Bank of America Securities whose analyst David Barden cut his exactly in half to $2.00 per share from his preceding $4.00. Of the deeply indebted company, Barden wrote that the "stock can't work until the bond market warms to the LUMN fundamental story," which isn't happening just now.
Now what
Analysts don't always have the most accurate takes on stocks, but in this case they're quite justified in their recent actions.
A major problem for Lumen is that it operates what is essentially a legacy telecom business in a world where investors are more impressed with operators that straddle the cutting edge with super-fast broadband and hot wireless technology. Lumen is seen as a business that doesn't (yet) compete well enough in these areas.
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.
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