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Lumen Technologies Inc(LUMN-N)

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Why Lumen Stock Is Jumping This Week

Motley Fool - Fri Feb 9, 11:49AM CST

Lumen(NYSE: LUMN) stock is gaining this week following the publication of its fourth-quarter results. The company's share price was up 13.1% as of 11:45 a.m. ET, according to data from S&P Global Market Intelligence.

Lumen reported Q4 results on Feb. 6, delivering sales and earnings performance in the period that came in better than Wall Street had anticipated. The telecom company posted non-GAAP (adjusted) earnings per share of $0.08 on sales of $3.52 billion in the quarter. For comparison, the average analyst estimate had called for an adjusted loss per share of $0.01 on sales of 3.46 billion.

Lumen's solid Q4 report helps support a bull case

Lumen's fourth-quarter revenue declined 7.4% year over year, but the dip was lower than expected. Adjusted margins for the period were also far better than Wall Street's targets. The business's pivot to fiber-based internet and networking technology services showed some moderate signs of progress in Q4, and the company's guidance for 2024 was encouraging.

For the current year, Lumen is guiding for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of between $4.1 billion and $4.3 billion. Meanwhile, it projects free cash flow (FCF) of $100 million to $300 million.

What comes next for Lumen?

In addition to issuing a better-than-expected Q4 report, Lumen has made some significant progress with restructuring its debt. Having pushed debt maturities further out and secured new lines of capital, the company should be able to minimize potential bankruptcy risks in the near term and give itself more flexibility to orchestrate its transformation initiatives. But despite today's gains, Lumen stock is still down roughly 20% in 2024.

LUMN PS Ratio (Forward) Chart

LUMN PS Ratio (Forward) data by YCharts

With a market capitalization of roughly $1.5 billion, Lumen is now valued at roughly 11% of this year's expected sales. The company is also valued at less than a third of the company's midpoint adjusted EBITDA target for this year. Meanwhile, the company is valued at approximately 7.5 times the midpoint of management's FCF guidance range.

On the other hand, Lumen still closed out last year with long-term debt of $19.8 billion. That was down from the $20.4 billion in long-term debt it had at the end of 2022, but uncertainty about the company's ability to weather large interest payments and reduce the principal amount helps explain why the business still trades at such depressed levels.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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