Technology and communications company Lumen Technologies, Inc. (LUMN) provides various integrated services and solutions under CenturyLink name to business and residential customers in the United States and internationally. LUMN shares have gained 31% over the past year and 12.1% over the past month. The stock gained 9.7% over the past five days and 5.7% intraday to close its last trading session at $13.77.
The company plans to increase its fiber deployments from 2.5 million locations to 12 million, which represents a five-times increase over its standard deployment rate, aiming to deploy an all-digital experience of its quantum fiber platform. In conjunction with this, LUMN is also expecting to close a sale of its local exchange business to Apollo Funds in the second half of 2022 and retain markets mostly in metro areas. President and CEO Jeff Storey said that his company is now positioned as an “all-digital fiber brand.”
Given the continued growth of cloud computing services and the popularity of remote working trends, tech companies are investing heavily to deploy 5G solutions. The company’s extensive edge computing platform and fiber network should allow the company to cash in on the burgeoning 5G space.
Here’s what could shape LUMN’s performance in the near term:
LUMN’s $1.00 annual dividend yields 7.26% at the current share price. On November 18, LUMN declared a regular quarterly cash dividend of 25 cents per share, which was payable on December 10, 2021, to shareholders of record at the close of business on November 29, 2021. The company’s four-year average dividend yield for LUMN is 10.48%, while its payout ratio is 51.9%.
LUMN’s free cash flow came in at $1.07 billion in the fiscal third quarter of 2021, compared to $879 million in the third quarter of 2020. Also, for the nine months ended September 30, its cash and cash equivalents balance was $635 million, indicating an increase of 20.7% year-over-year. In addition, LUMN projects its free cash flow to be within $3.60 to $3.80 billion, up from its previous guidance of $3.10 to $3.30 billion. The company’s robust cash flows should ensure stable dividend payouts in the coming quarters.
LUMN Looks undervalued at its Current Price level
In terms of forward P/E, LUMN is currently trading at 7.22x, 63.5% lower than the industry average of 19.78x. Also, its forward Price/Cash Flow of 2.22x is 78% lower than the industry average of 10.06. Furthermore, LUMN’s forward EV/Sales and Price/Sales ratio of 2.21 and 0.72 is 12.1% and 58.3% lower than the industry averages, respectively.
Solid Bottom-Line Growth
The company’s operating revenue declined 5% year-over-year to $4.89 billion in the fiscal third quarter ended September 30. The management expects a return to revenue growth within 2-3 years. However, its operating income rose 27% from its year-ago value to $1.13 billion. LUMN’s net income came in at $544 million, indicating an increase of 49% year-over-year, while its EPS came in at $0.51, up 50% year-over-year.
POWR Ratings Reflect Growth Prospects
LUMN has an overall rating of B, translating to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Value, consistent with its lower-than-industry valuation multiples.
LUMN has a C grade for Stability. Its beta of 0.98 justifies this grade.
Of the 19 stocks in the Telecom – Domestic industry, LUMN is ranked #4.
Beyond what I have stated above, you can also view LUMN’s grades for Sentiment, Growth, Momentum, and Quality here.
View the top-rated stocks in the Telecom – Domestic industry here.
LUMN is a popular name in the telecom industry and serves customers in more than 60 countries. Despite the company’s revenue declines, it reported stable bottom-line growth. Moreover, LUMN is currently trading at a discount to its peers. Also, considering its high yield and stable cash flows, the stock could be a profitable bet.
How Does Lumen Technologies, Inc. (LUMN) Stack Up Against its Peers?
LUMN has an overall POWR Rating of B. However, one could also check out these other stocks within the Telecom – Domestic industry also with a B (Buy) rating: InterDigital Inc. (IDCC), Ooma, Inc. (OOMA), and Cogent Communications Holdings, Inc. (CCOI).
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LUMN shares were trading at $13.69 per share on Monday afternoon, down $0.08 (-0.58%). Year-to-date, LUMN has gained 9.08%, versus a -3.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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