Lumen Technologies, Inc.

LUMN Details

Lumen Technologies, Inc. (NYSE: LUMN) serves residential, government, and commercial clients worldwide with a comprehensive range of communications services. Across Europe, Asia, and Latin America, the company has around 450,000 route miles of fiber optic cable networks. As a result, LUMN is one of the world's major communication service providers. Since the internal reorganization in January 2021, LUMN operates in two segments: 1) Business, which provides products and services to enterprise and commercial customers via four marketing channels: International and Global Accounts (IGAM), Large Enterprise, Mid-Market Enterprise, and Wholesale, and 2) Mass Markets, which provides products and services to small business corporates and individual customers. LUMN serves 4.7 million broadband customers under the Mass Market segment as of March 31, 2021.

Augmented Partnership With TMUS: On July 15, 2021, T-Mobile (NASDAQ: TMUS), an American wireless network operator, and LUMN announced expanding their partnership to assist government agencies in offering fixed wireless access services at field sites across the US by using TMUS 5G mobile network and the Lumen computing platform. T-Mobile and Lumen's wireless access service is now part of the comprehensive Lumen product portfolio accessible to government entities under the General Services Administration's (GSA) Enterprise Infrastructure Solutions (EIS) initiative, which runs for 15 years and costs USD 50 billion.

Redesigning Application Delivery With Microsoft: LUMN announced a strategic partnership with Microsoft on July 7, 2021, that would influence the next generation of enterprise application delivery by introducing Microsoft's Azure capabilities to the Lumen platform, resulting in one of the quickest and most secure platforms for apps and data.

Robust Q1FY21 Results: The company reported a slight decline of 3.80% in operating revenue to USD 5.03 billion in Q1FY21 (ended March 31, 2021) compared to USD 5.23 billion in Q1FY20. However, LUMN reported a sharp uptick in net income to USD 475 million in Q1FY21 vs. USD 314 million in Q1FY20. In addition, the company is continuously paying down its long-term debt while maintaining its dividend distribution (USD 0.25 per share).

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

Key Risks: In the second and third quarters of the year, LUMN network-related operational expenditures are often greater due to hurricanes and storms occurring in the Atlantic and Gulf of Mexico coastlines. Further, LUMN is facing increased competition from a variety of industry competitors. In recent years, higher competition has driven down market pricing for many of the company's products and services. As a result, the company's operational and financial condition may be impacted in the future. In addition, the company's leveraged balance sheet is a source of concern, particularly in a rising rate environment, although it has been improving steadily.

Outlook: For FY21, the company expects its adjusted EBITDA to be around 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 (Source: REFINITIV)

Stock Recommendation: LUMN's share price has fallen by 8.71% in the past one month and is currently leaning towards the mid-band of the 52-week range of USD 8.51 to USD 16.60. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 36.12. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 15.93. We believe the company's fiber network constitutes a unique asset that provides a sizeable competitive advantage. Considering the company’s market dominance, robust dividend yield, strategic investments, associated risks, and current valuation, we recommend a “BUY” rating on the stock at the current price of USD 12.89, up by 0.31% as of July 21, 2021, 02:53 PM ET.

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

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

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Cannae Holdings, Inc.

CNNE Details

Cannae Holdings, Inc. (NYSE: CNNE) is a holding company that maintains a portfolio of investments by making majority and minority equity investments in other companies in order to generate improved business performance. Minority ownership stakes in Dun & Bradstreet Holdings, Inc. (D&B), Ceridian HCM Holdings, Inc. (Ceridian), Paysafe Limited (Paysafe), Optimal Blue Holdco, LLC (Optimal Blue), AmeriLife Group, LLC (AmeriLife), and QOMPLX, Inc. (QOMPLX) were among the company's primary investments as of March 31, 2021. In addition, CNNE has majority interests in O'Charley's Holdings, LLC (O'Charley's) and 99 Restaurants Holdings, LLC (99 Restaurants) and other equity and debt assets. These include variable interests in certain unconsolidated affiliates such as Foley Trasimene Acquisition Corp. (FTAC), Trebia, Austerlitz I and Austerlitz II.

Business combination of Investment companies: The business combination between FTAC, a special purpose acquisition company, and Alight Solutions, a leading cloud-based provider of integrated digital human capital and business solutions, was approved by Foley Trasimene stockholders on June 30, 2021, and closed on July 2, 2021.  Earlier on January 25, 2021, Cannae entered into an agreement to purchase 25 million shares of Alight Solutions for USD 250.0 million as per the Alight Subscription Agreement.

Termination of Forward Purchase Agreement (FPA): CNNE, in tandem with the announced business combination of Trebia Acquisition Corp. (Trebia) and System1, terminated its previously announced USD 75 million FPA on June 29, 2021. Instead, the company made an equity backstop commitment of up to USD 200 million in the combined entity, with 50% of this commitment being applied against the first USD 200 million of Trebia stockholder future redemptions and the next USD 100 million applied against the same redemptions beyond USD 200 million. CNNE will keep its approximately 15% indirect economic stake in Trebia's outstanding founder shares.

Q1FY21 Results: The company reported a slight decline of 0.63% in total operating revenue to USD 171.9 million in Q1FY21 (ended March 31, 2021) compared to USD 173 million in Q1FY20. Total restaurant revenue contributed 97.32% of the total operating revenues in Q1FY21. In addition, CNNE reported negative earnings of USD 233.80 million in Q1FY21 compared to a profit of USD 638.10 million in Q1FY20, primarily due to high net recognized losses during the quarter. As of March 31, 2020, the company stood with cash and cash equivalents (including short-term investments) of USD 475.50 million, with total debt of USD 59.70 million.

Portfolio Investment as of May 2021 (Source: Investor Presentation, May 2021)

Key Risks: The Covid-19 outbreak wreaked havoc on the restaurant and hospitality industries throughout the world. As a result, the firm had to shut locations, change working hours, and apply cost-cutting measures throughout the restaurant group. Consequently, the epidemic has had a severe influence on the company's financial condition, and any additional extension is expected to worsen the company's operating situation.

Valuation Methodology: EV/Sales 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.

CNNE Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: CNNE share price has fallen 25.13% in the past six months and is currently leaning towards the lower-band of the 52-week range of USD 29.51 to USD 46.57. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 37.83. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 38.19. Considering the correction in the stock price, significant track record, strong balance sheet, associated risks, and current valuation, we recommend a "Buy" rating on the stock at the current price of USD 31.33, up 3.57% as of July 21, 2021, 1:33 PM ET.

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

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

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.