Lumen Technologies, Inc.

LUMN Details

Lumen Technologies, Inc. (NYSE: LUMN) provides a broad range of telecommunication services to its residential and business customers worldwide. The company has around 450,000 route miles of fiber optic cable networks across Europe, Asia, and Latin America. LUMN ranks among the largest provider of communication services globally. As of June 22, 2021, the company’s market capitalization stood at USD 15.48 billion. Since the internal reorganization in January 2021, the company operates in the following two segments: 1) Business: This segment provides products and services to enterprise and commercial customers under four sales channels, i.e., International and Global Accounts (IGAM), Large Enterprise, Mid-Market Enterprise, and Wholesale segment, and 2) Mass Markets: This segment provides products and services to consumers and small business enterprises. As of March 31, 2021, the division serves 4.7 million broadband subscribers.

Refinancing Initiatives: On June 15, 2021, LUMN completed its previously announced private offering of USD 1.00 billion principal amount of its 5.375% senior notes due in 2029. The telecommunication services provider used the net proceeds from the offering to repay its outstanding 6.45% senior notes due in 2021.

Robust Q1FY21 Results: The company reported a slight decline of 3.80% in operating revenue to USD 5,029 million in Q1FY21 (ending March 31, 2021) compared to USD 5,228 million in Q1FY20 (ending March 31, 2020). The business segment contributed 71.48%, while the Mass Market segment contributed 28.51% of the operating revenues during the quarter. The company reported a sharp increase of 51.27% in net income to USD 475 million compared to that of USD 314 million in Q1FY20. The company is continuously paying down its long-term debts while maintaining its dividend distribution (USD 0.25 per share).

Quarterly Financial Metrics (Source: Earnings Presentation, May 05, 2021)

Key Risks: The company faces increasingly intense competition from various players in the industry. The increase in competition has lowered the market prices for many of the company’s products and services in past years. The continual decrease in market prices could affect the company’s operational and financial situation in the future. Also, the leveraged balance sheet is a cause for concern, particularly in a rising rate environment, though the company has been improving it continuously.

Outlook: For FY21, the company is expecting its adjusted EBITDA to be in the range of USD 8.4 billion to USD 8.6 billion. Free Cash Flow is projected to be in the range of USD 2.8 billion to USD 3.0 billion. The company is also forecasting to pay out USD 1.10 billion as dividends in FY21.

Valuation Methodology: EV / EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

LUMN Daily Technical Chart

Stock Recommendation: LUMN has slightly increased by only 2.97% in the past three month and is currently leaning towards the higher band of the 52-week range of USD 8.51 to USD 16.60. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 16.60. We believe the company’s fiber network constitutes a unique asset that provides a large competitive advantage. Considering the company’s market dominance, robust dividend yield, continued improvement in long-term debt profile, and current valuation, we recommend a “BUY” rating on the stock at the closing price of USD 14.03, down by 0.64% as of June 22, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.