After Nixing its 13% Dividend, Is Lumen Technologies Okay To Own?
CenturyLink merged with Qwest to become the third-largest telecommunications company in the U.S. in 2010. The Company continued to gobble up technology companies like Savvis, a cloud infrastructure company in 2012 and broadband provider Level 3 Communications in 2017. The Company changed its name from CenturyLink to Lumen Technologies (NYSE: LUMN) on Sept. 18, 2020. Legacy Copper-based services would be maintained under CenturyLink, while fiber-based products would be serviced under the Quantum Fiber brand. The Company offers cloud, IT, voice and broadband services for residential, small-business, and enterprise customers. It’s Quantum Fiber is the growth engine as it expands in over 30 U.S. cities and metro areas expanding access to millions of new consumers. Value investors may be interested in its assets which include over 400,000 route fiber miles serving customers in over 60 countries. Google Fiber (NASDAQ: GOOG) has deployed 50,000 miles of fiber in 60 markets at a cost of over $14 billion, twice the market cap of Lumen stock. Its low price-to-book ratio (0.5) makes it an asset play if more pieces are sold or gone private. Can the new CEO change the company’s downward trajectory?
Raising Cash and Fending Off Competition
The Company has been shedding some of its businesses to pay down debt which will be reduced to $20.4 billion after paying it tax bill between $900 million to $1 billion for its 20-state ILEC sales of its LATAM business to Apollo for $7.5 billion. The Board of Directors decided to eliminate the $1. 00 annual dividend and implement a stock buyback program up to $1.5 billion with a two-year time. The Company expects an inflation effect for the full year next year. The Company is putting more emphasis on digitizing front and back office functions. Lumen faces competition from the big broadband providers like AT&T (NYSE: T), Verizon (NYSE: VZ), and Comcast (NASDAQ: CMCSA) as well as cloud service and applications providers including Amazon Web Services (NASDAQ: AMZN), Microsoft Azure (NASDAQ: MSFT), and Google Cloud (NASDAQ: GOOG).
Top and Bottom Line Downward Trajectories
Lumen reported its Q3 2022 earnings on Nov. 2, 2022. The Company reported earnings per share (EPS) of $0. 14 missing consensus analyst estimates for $0. 35 by (-$0.21). Net income was $578 million versus $544 million in the year-ago period. Special items of (-$527 million) and (-$31 million) dropped EPS from $0. 57 to $0.14. Revenues continued to drop (-10.2%) year-over-year (YoY) to $4. 39 billion missing analyst estimates of $4. 41 billion. Adjusted EBITDA fell below $1. 688 billion compared to $2. 078 billion in the year ago period. The Company completed the $2.7 Billion divestiture of Stonepeak, its Latin American business. The Company generated $620 million in free cash flow. Lumen completed its $7.5 billion divestiture of its 20-state ILEC business to Apollo on Oct. 3, 2022. Lumen canceled its stock dividend and authorized a share buyback program of up to $1.5 Billion over two years. Colt Technology was awarded an exclusive agreement to sell the EMEA business of Lumen to them for $1.8 billion. Kate Johnson, the new Lumen President and CEO, commented that “The opportunity for Lumen was significant, and I am eagerly to leverage today’s announcements, and the adjusted capital allocation priorities, to drive profitable growth, shareholder value, and growth.” Jeff, the Lumen Board and I are fully aligned in these decisions. I look forward to getting the ball rolling on November 7. The Company expects adjusted EBITDA in the range of $6.9 billion to $7.1 billion for fiscal full-year 2022.
Department of Defense Contract
On Nov. 1, 2022, Lumen announced it won a $1.5 billion cap 10-year defense contract from the Defense Information Systems Agency. Lumen will provide critical network transport and communications services that will enable the U.S. Department of Defense to recognize its national security objectives in Alaska and the Asia Pacific region. The contract services include internet, ethernet and wavelength to protect America’s interests. Lumen’s dark fibre has been exclusively used for government contract services. It is posted under the CenturyLink segment.
Breakdown After a Breakdown
The LUMN weekly candlestick chart illustrates the descending triangle breakdown occurring in August 2022 as each preceding bounce was lower until the $10. 07 support finally gave in. The swing low for shares was $6. 34 before triggering the weekly market structure low (MSL) for a rally back up to $7. 60 in October to Nov. 1, 2022. On Nov. 2, 2022, LUMN shares collapsed over (-17%) on in reaction to its Q3 2022 earnings report and dividend elimination triggering the weekly bear flag breakdown. The weekly 20-period exponential moving average (EMA) resistance hasn’t tested yet as it continues to fall to $8. 27 followed by the 50-period MA at $10.40. $6 is the daily MSL trigger. 03 after making a new swing low of $5.68. The $5.50 level is the pullback support level. 68 swing low to $5. 54, $4. 94, $4. 44, $3. 62, and $3.01.
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