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Lumen Stock Up More Than 360% in 3 Months: Cash in or Stay Invested?
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Lumen Technologies (LUMN - Free Report) has seen its stock price skyrocket 362% in the past three months. This meteoric rise has undoubtedly caught the attention of investors, prompting questions about whether to capitalize on gains or maintain a long-term investment stance.
Image Source: Zacks Investment Research
Closing at $5.68 as of yesterday’s trading session, LUMN stock is currently trading 27.5% below its 52-week high of $7.83, attained on Aug. 7, 2024. Technical indicators are supportive of Lumen’s strong performance. The stock is trading above both its 100-day and 200-day moving averages, indicating robust upward momentum and price stability.
Image Source: Zacks Investment Research
LUMN Stock Skyrockets on AI Buzz
Lumen stock has been gaining due to the buzz surrounding AI. In August 2024, the company announced that it had secured $5 billion in new business deals attributed to significant AI-fueled connectivity demand. As AI needs surge, large companies across various industries urgently seek fiber capacity, which is becoming highly valuable and potentially scarce. LUMN further added that it was actively negotiating with its customers to secure another $7 billion in AI deals.
Before that, in July 2024, Microsoft Corporation (MSFT - Free Report) chose Lumen’s Private Connectivity Fabric to enhance its network capacity and support the increasing needs of data centers due to AI proliferation. Lumen also added that it would leverage Microsoft’s cloud and AI technologies to boost its digital transformation and cut technology costs, eliminate outdated systems and silos, upgrade its services and develop new solutions for its clientele. This initiative is projected to boost Lumen's cash flow by over $20 million within the next year.
Lumen secured its largest cable purchase agreement with Corning Incorporated (GLW - Free Report) , which will ensure 10% of Corning’s global fiber capacity for Lumen in the next two years, advancing AI capabilities for cloud data centers, enterprises and public agencies.
More recently, LUMN teamed up with Ciena Corporation’s (CIEN - Free Report) Blue Planet to support its strategic network inventory transformation efforts.
$1 Billion in Cost Cuts for LUMN
Lumen is also working on achieving $1 billion in cost savings by the end of 2027 through planned infrastructure simplification across the network, product portfolio and IT. It is looking to integrate the network across all four different architectures by engineering them into one simplified, standardized network fabric. This integration will also aid in product portfolio simplification. Management expects to significantly reduce the product count from thousands of product codes to a target of nearly 300.
Momentum in Quantum Fiber Business Bodes Well for LUMN
Continued investment in Quantum Fiber and enterprise business is a positive. Lumen anticipates witnessing healthy momentum in the Quantum business in the upcoming quarters. The company added 40,000 Quantum fiber subscribers, taking the count to 992,000 in the last reported quarter. In the second quarter, total enablements were approximately 136,000. As of June 30, 2024, the total enabled locations in the retained states stood at 3.9 million. The company is targeting 500,000 enabled locations in 2024.
LUMN’s Discounted Valuation
From a valuation perspective, LUMN is trading at a massive discount. Going by its trailing 12-month price-to-sales ratio, LUMN is trading at a multiple of 0.41, much below the industry’s ratio of 8.23.
Image Source: Zacks Investment Research
What Could Derail LUMN Stock’s Momentum?
LUMN’s top line remains under pressure. In the second quarter of 2024, total revenues declined 10.7% year over year due to the negative impact of divestitures, commercial agreements and the sale of the CDN business. In the first quarter, revenues were down 12% year over year.
LUMN’s debt-heavy balance sheet is concerning. As of June 30, 2024, the company had $1.495 billion in cash and cash equivalents with $18.411 billion of long-term debt against the respective figures of $1.58 billion and $18.591 billion as of March 31, 2024. Earlier in the year, LUMN managed a debt-restructuring deal with creditors for more than $15 billion of outstanding debt and commitments of the company and its subsidiaries.
It also lowered EBITDA guidance for the current year. Lumen now expects adjusted EBITDA in the band of $3.9-$4 billion compared with the earlier guided range of $$4.1-$4.3 billion.
Lumen added that it was looking to pull forward certain expenses from 2026 and 2027 to 2025. It expects 2025 EBITDA to come in below 2024 levels, owing to the investments in transformation and costs associated with recent PCF sales and legacy revenue declines. LUMN expects EBITDA to significantly rebound in 2026 and register growth thereafter.
Though the company remains excited by the AI opportunity, stiff competition in this space could impede its efforts to secure new business deals.
Estimates Revision Activity for LUMN
In the past 60 days, analysts have increased their estimates for the current quarter by 64.3% but decreased the next quarter’s estimate by 57.1%.
Though opportunities presented by the rapid proliferation of AI are positive, tight competition in the AI space could prove to be an impediment. Massive debt load and pressure topline remain concerns, despite discounted valuation. Consequently, it might not be a prudent investment decision to bet on the stock at the moment. However, long-term stakeholders and investors already owning the stock could stay put.
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Lumen Technologies (LUMN - Free Report) has seen its stock price skyrocket 362% in the past three months. This meteoric rise has undoubtedly caught the attention of investors, prompting questions about whether to capitalize on gains or maintain a long-term investment stance.
Image Source: Zacks Investment Research
Closing at $5.68 as of yesterday’s trading session, LUMN stock is currently trading 27.5% below its 52-week high of $7.83, attained on Aug. 7, 2024. Technical indicators are supportive of Lumen’s strong performance. The stock is trading above both its 100-day and 200-day moving averages, indicating robust upward momentum and price stability.
Image Source: Zacks Investment Research
LUMN Stock Skyrockets on AI Buzz
Lumen stock has been gaining due to the buzz surrounding AI. In August 2024, the company announced that it had secured $5 billion in new business deals attributed to significant AI-fueled connectivity demand. As AI needs surge, large companies across various industries urgently seek fiber capacity, which is becoming highly valuable and potentially scarce. LUMN further added that it was actively negotiating with its customers to secure another $7 billion in AI deals.
Before that, in July 2024, Microsoft Corporation (MSFT - Free Report) chose Lumen’s Private Connectivity Fabric to enhance its network capacity and support the increasing needs of data centers due to AI proliferation. Lumen also added that it would leverage Microsoft’s cloud and AI technologies to boost its digital transformation and cut technology costs, eliminate outdated systems and silos, upgrade its services and develop new solutions for its clientele. This initiative is projected to boost Lumen's cash flow by over $20 million within the next year.
Lumen secured its largest cable purchase agreement with Corning Incorporated (GLW - Free Report) , which will ensure 10% of Corning’s global fiber capacity for Lumen in the next two years, advancing AI capabilities for cloud data centers, enterprises and public agencies.
More recently, LUMN teamed up with Ciena Corporation’s (CIEN - Free Report) Blue Planet to support its strategic network inventory transformation efforts.
$1 Billion in Cost Cuts for LUMN
Lumen is also working on achieving $1 billion in cost savings by the end of 2027 through planned infrastructure simplification across the network, product portfolio and IT. It is looking to integrate the network across all four different architectures by engineering them into one simplified, standardized network fabric. This integration will also aid in product portfolio simplification. Management expects to significantly reduce the product count from thousands of product codes to a target of nearly 300.
Momentum in Quantum Fiber Business Bodes Well for LUMN
Continued investment in Quantum Fiber and enterprise business is a positive. Lumen anticipates witnessing healthy momentum in the Quantum business in the upcoming quarters. The company added 40,000 Quantum fiber subscribers, taking the count to 992,000 in the last reported quarter. In the second quarter, total enablements were approximately 136,000. As of June 30, 2024, the total enabled locations in the retained states stood at 3.9 million. The company is targeting 500,000 enabled locations in 2024.
LUMN’s Discounted Valuation
From a valuation perspective, LUMN is trading at a massive discount. Going by its trailing 12-month price-to-sales ratio, LUMN is trading at a multiple of 0.41, much below the industry’s ratio of 8.23.
Image Source: Zacks Investment Research
What Could Derail LUMN Stock’s Momentum?
LUMN’s top line remains under pressure. In the second quarter of 2024, total revenues declined 10.7% year over year due to the negative impact of divestitures, commercial agreements and the sale of the CDN business. In the first quarter, revenues were down 12% year over year.
LUMN’s debt-heavy balance sheet is concerning. As of June 30, 2024, the company had $1.495 billion in cash and cash equivalents with $18.411 billion of long-term debt against the respective figures of $1.58 billion and $18.591 billion as of March 31, 2024. Earlier in the year, LUMN managed a debt-restructuring deal with creditors for more than $15 billion of outstanding debt and commitments of the company and its subsidiaries.
It also lowered EBITDA guidance for the current year. Lumen now expects adjusted EBITDA in the band of $3.9-$4 billion compared with the earlier guided range of $$4.1-$4.3 billion.
Lumen added that it was looking to pull forward certain expenses from 2026 and 2027 to 2025. It expects 2025 EBITDA to come in below 2024 levels, owing to the investments in transformation and costs associated with recent PCF sales and legacy revenue declines. LUMN expects EBITDA to significantly rebound in 2026 and register growth thereafter.
Though the company remains excited by the AI opportunity, stiff competition in this space could impede its efforts to secure new business deals.
Estimates Revision Activity for LUMN
In the past 60 days, analysts have increased their estimates for the current quarter by 64.3% but decreased the next quarter’s estimate by 57.1%.
Image Source: Zacks Investment Research
Final Thoughts
A nuanced approach is needed while dealing with LUMN as this stock carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Though opportunities presented by the rapid proliferation of AI are positive, tight competition in the AI space could prove to be an impediment. Massive debt load and pressure topline remain concerns, despite discounted valuation. Consequently, it might not be a prudent investment decision to bet on the stock at the moment. However, long-term stakeholders and investors already owning the stock could stay put.