Is this Telecommunication Company too Cheap to Ignore?

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Written By Kevin MacDonald

Earnings Impact on Stock Performance

Lumen Technologies experienced a notable 7.41% increase in stock value following the release of its fourth-quarter results. The market responded positively to the company’s non-GAAP earnings despite a decrease in revenue.

This reaction comes at a critical time for Lumen, which has been trading below $2.00 since July 2023, a significant drop from $6.00 at the beginning of the previous year.

With a substantial 13.76% short interest, the question remains whether Lumen can overcome its penny stock status.

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Financial Overview

Lumen reported non-GAAP earnings of $0.08 per share, with revenues declining by 7.4% year-on-year to $3.52 billion.

Credits: DepositPhotos

The financial statement highlighted a $938 million cash tax payment in Q2/2023 and notable adjustments in the EBITDA reconciliation, including depreciation, amortization, and severance costs.

Strategic Debt Management and Operational Highlights

CEO Kate Johnson emphasized improvements in the balance sheet, extending debt maturities and securing $1.325 billion in new financing.

Lumen’s wireline segment saw a smaller revenue decline compared to major legacy telecom competitors, positioning the company more favorably in the digital economy’s evolving needs, particularly in hybrid, multi-cloud, and edge computing.

Growth Initiatives and Market Strategy

Lumen is focusing on expanding its public sector segment, which showed significant quarter-on-quarter and year-on-year growth.

The company is also increasing its sales force and capitalizing on business wins in the Large Enterprise segment, with notable clients like Uber.

Efforts to enhance market share in mass markets include ambitious fiber network expansion plans, aiming to drive fiber market penetration.

Capital Expenditure and Cash Flow Projections

Despite a capital expenditure of $2.9 billion, Lumen anticipates a free cash flow ranging from $100 million to $300 million in 2024, bolstered by a $700 million tax refund.

The company is also managing transition costs related to divestitures as part of its special items.

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Investor Sentiment and Future Outlook

Post-earnings, LUMN stock saw an uptick, but investors remain wary of fluctuating operating expenses and the long-term impact on revenue.

Lumen’s strategy to manage wholesale revenue decline and Harvest product revenue challenges is crucial for its financial stability. The company’s valuation grade stands at A+, reflecting its market positioning.

Investment Consideration

Lumen’s journey to revitalize its business involves significant capital investment and strategic focus on sales growth, customer service improvement, and product quality.

Credits: DepositPhotos

The company’s commitment to its transformation plan, without resorting to asset sales or business splits, lays the groundwork for gradual business growth.

Currently, Lumen holds a Hold rating, as investors and analysts await further evidence of cost-saving measures and business expansion paying off.

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