Lumen stock plunges toward levels not seen in 34 years amid a ‘reset’

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Lumen Technologies Inc. Shares were falling to levels not seen since 1988 Wednesday as the telecommunications company, which provides voice, broadband and other services, hit the reset button and disappointed Wall Street with its outlook.

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While earnings and revenue exceeded consensus outlook for the latest quarter, Lumen came in far short of its 2023 estimates for free-cash flow and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA).

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“We need to do a number of things, some basic and some quite complex, to position ourselves to take advantage of the opportunity that is in front of us,” Chief Executive Officer Kathleen Johnson said on the earnings call. He also said that “2023 will be a year of rapid change for Lumen.”

The stock was down 19.7% in Wednesday morning trading and was on track for its worst single-day percentage decline since Jan 28, 21, when it plunged 22.5%. This would mark the second sharpest post-earnings stock decline for Lumen in as many reports, as the name plunged 17.7% after the company delivered results and eliminated its dividend in November.

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Shares of the company formerly known as CenturyLink recently changed hands at $4.02, according to Dow Jones market data, they are on track to post their lowest level since August 23, 1988. when they ended at $3.90.

Analysts were fairly blunt with their assessments after reporting with SVB Moffetnathanson’s Nick Del Deo writing that he is “hard to miss last time”. [he] Spoke with a client with a positive bias” on the stock.

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“The most common question we’ve received from customers recently has been: Did the numbers drop significantly?” Dell Dev asked. “Lumen’s preliminary 2023 outlook suggests the answer was: No, they didn’t. It’s been a long time since we’ve seen a reduction of this magnitude.”

Lumen’s 2023 adjusted EBITDA forecast fell roughly 10% below expectations, he said.

While Lumen is under new leadership, Dell Dev was skeptical that the company’s problems could be solved with a different approach from management.

The company has “significant legacy revenue streams; a highly competitive and increasingly commoditized commercial wireline market characterized by high fixed and low variable costs; substantial accumulated debt; an increasingly difficult-to-rational expenditure base; And so on, ”he wrote.

Dell Dev rated the stock at Underperform with a target price of $4.

Meanwhile, Citi Research analyst Michael Rollins downgraded the stock to Sell from Neutral and cut his price target to $3.50 from $6.25.

“Headwinds from inflation, divestment dis-synergies, and new investment were well ahead of our 2023 expectations without the relief valve from more cost-cutting depicted as a reset year,” he wrote.

Although executives were “prioritizing investments to improve future revenue from greater retention and market share,” they were concerned that the efforts may not be as expected or under the right timelines.

Cowen analyst Gregory Williams wrote that Lumen’s management “cleared the decks” with the forecast but added that “it is too early to assess whether the new strategy will right the ship versus many prior strategies.”

He’ll be watching for more details coming out of the company’s June 5 analyst day as well as signs of a less sharp decline.

Williams rates the stock at Market Perform, and lowered his price target to $4.50 from $8.

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