Lumen Technologies, Inc. 

Lumen Technologies, Inc. (NYSE: LUMN) is a fully integrated communications firm that provides a wide range of communications services to residential and business customers. LUMN serve customers in more than 60 countries through 450,000 route miles of its fibre optic cable networks. 

Why Should Investors Exit? 

• Declining Fundamentals: Net revenues fell 4.95% YoY to USD 19.69 billion in FY21 (ended December 31, 2021) from USD 20.71 billion in FY20. It also reported a reduction in adjusted EBITDA in FY21 to USD 8.42 billion vs. USD 8.49 billion in FY20. 
• Significantly leveraged balance sheet: The company is exposed to a higher balance sheet risk than its peers, with a Debt/Equity ratio of 2.45x as of December 31, 2021, compared to the industry median of 0.71x, implying a higher balance sheet risk. Furthermore, its %Long Term Debt to Total Capital ratio was 67.2%, compared to the industry median of 34.2% for a similar period. These leveraged financials put the company at the brink of wild swings on the slightest interest rate movements. 
• Competition Risk: LUMN operates in the communication industry, which is quite competitive. Many of the company's products have seen market prices drop in recent years due to severe pricing rivalry. If this trend holds, the company's financials may suffer much more damage. 
• Weak Technical: On the daily chart, LUMN’s prices are sustaining below the downward sloping trend line and facing the same resistance along with 200-DMA. Furthermore, the momentum oscillator RSI (14-period) is trading at ~56.53 level, showing that stock is approaching overbought territory. However, the prices are trading below the trend-following indicators 21-period and 50- period SMA, which may act as a resistance level for the stock. An important support level for the stock is placed at USD 9.50, while the key resistance level is placed at USD 14.50. 

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation 

(Analysis by Kalkine Group) 

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

Stock Recommendation:  

LUMN's share price has declined 10.16% in the past three months and is currently leaning towards the lower band of the 52-week range of USD 11.09 to USD 15.45. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 11.45. Considering the company's highly leveraged balance sheet, decline in financials, current valuation and associated risks. we recommend a "Sell" rating on the stock at the closing price of USD 12.82, up 1.10% as of February 09, 2022.

Three-Year Technical Price Chart (as of February 09, 2022). Analysis by Kalkine Group 

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

* All forecasted figures and industry information have been taken from REFINITIV.