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Lumen Technologies Inc
LUMN-N
DON'T BUY
Nov 01, 2023
$0.980
Stock price when the opinion was issued
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TOP PICK
Stockchase Research Editor: Michael O'Reilly With the blow down in share prices that resulted after halting the dividend, LUMN valuation is excellent at this level as it trades at 3x earnings. The company provides all things internet over a 400,000 fibre optic miles network in 60 countries. It recently announced a $1.5 billion contract with the US Dep. of Defense for security in the Asia-Pacific region. It has retired a massive amount of debt. We recommend a stop-loss at $3.65, looking to achieve $7.25 -- upside over 33%. Yield 0% (Analysts’ price target is $7.14)
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LUMN is down 79% year-to-date and it recently missed its earnings by a wide margin. The company's sales declined year-over-year by 17%, but its operating expenses also rose 14%, causing significant margin contraction. Its operating expenses last year benefited from the sale of its business, and its interest expenses remain high, at $295M in the recent quarter. It has reduced its debt significantly over the past several years, but it remains high at a net debt of ~$20B, and a net debt/EBITDA of 4.0X. Its interest coverage ratio has been materially contracting, now at 1.4X, and it's selling assets and business segments to reduce its debt burden. A bad mix of declining sales, flat to contracting margins, and sales of some of its business units to reduce a debt/equity ratio of 9.0X is likely to negatively impact this name for some time. We do not expect a recovery in this name unless sales can recover, however, it seems the company is focused on restructuring rather than growing.
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