Lumen technologies stock forecast 2025 free#

Lumen technologies stock forecast 2025 free#

I down-graded Lumen after Q4'22 earnings due to Lumen's free cash flow guidance for FY 2023, although the company is still seeing solid momentum with its broadband subscriber business. There comes a point when a stock all of a sudden becomes so cheap that one has to re-evaluate a previous hold recommendation.

Lumen’s valuation is now so low, I have to change my outlook on its shares I believe Lumen’s exposure to unhedged variable-rate debt was, at least in part, a key reason why the stock made new lows lately. However, I believe the market overreacts to Lumen's variable-rate debt exposure: with $4.6-4.8B in adjusted EBITDA expected for FY 2023, a $78M pre-tax increase in interest rate payments - assuming a 100 bps rate increase - is hardly going to push Lumen out of business. A 100-basis point increase in rates would mean that Lumen could see a $78M increase in interest rate payments, on an annualized basis. The problem the market sees with Lumen is that the floating rate portion of the company's debt is unhedged, meaning new rate increases on the part of the Fed are posing a profit risk for Lumen. Included in Lumen's remaining financial obligations, however, are $7.8B worth of floating rate debt which, as of December 31, 2022, was mostly senior secured debt. The debt pay-down was facilitated by a couple of asset sales that raised cash and helped the company unburden is balance sheet. Therefore, Lumen reduced its long term debt by $7.0B last year, showing a decline of approximately 26%. Interest rate risk and variable-rate debt exposure come back into focusĭespite a string of bank failures, the Fed is expected to push forward with new rate hikes next week, which reignited fears over Lumen's variable-rate debt exposure.Īt the end of FY 2022, Lumen had $20.41B in long term financial debt, after current maturities are subtracted. In other words, both dividend investors and funds that track the S&P 500 had good reasons to ditch Lumen. Lumen's stock will be moved to the less-followed and less-important S&P 600 small-cap index on Monday which means funds that replicate the S&P 500 no longer have a reason to own Lumen's shares. Due to Lumen's declining market cap and trading volume, the S&P Dow Jones Indexes announced that, effective March 20, 2023, Fair Isaac would replace the telecom in the S&P 500 thereby reducing Lumen's stock visibility. The third negative catalyst was dealt to Lumen's investor base just recently, in early March. Then, Lumen bombed with its free cash flow forecast for FY 2023 which called for just $0-200M in free cash flow, meaning, in the low-case scenario, investors are only going to see break-even free cash flow this year. The first blow came in Q4'22 when the company suspended its dividend and by doing that eliminated the most important justification for dividend investors to own the stock. I recommended Lumen before - the last time at $5.40 on Janu- but I later changed my recommendation to hold as the telecom unexpectedly lowered is free cash flow forecast. Lumen can hardly be described as a successful investment, I must admit.

Three negative catalysts in the last few months

However, I believe Lumen's valuation has fallen so significantly, that I am changing my outlook/rating from hold to buy! The possibility of new rate increases also weighed on Lumen's market valuation, as investor refocus on the company's unhedged variable-rate debt. Additionally, the market has been negatively impacted by a string of high profile bank failures lately that has created new uncertainty for investors. Shares of Lumen fell into a new down-trend after the company presented results for the fourth-quarter in February and lowered its free cash flow forecast from around $2.0B to just $200M, in the best-case scenario. The market increasingly appears to lose confidence in telecom Lumen Technologies ( NYSE: LUMN).