Lumen stock falls after dividend is eliminated, but is there a silver lining?

Lumen Technologies Inc. shares were falling sharply in Thursday trading after the telecommunications company announced it was eliminating its dividend and selling another business, moves that have prompted tough questions about the future of the business.

The dividend announcement came in conjunction with Lumen’s
LUMN,
-16.52%
third-quarter earnings report, which also showed misses on profit and revenue. Additionally, the company announced late Wednesday that it has agreed to sell its business in Europe, the Middle East, and Africa for $1.8 billion.

Shares were down 15% in Thursday afternoon trading.

While the decision to eliminate the dividend came slightly earlier than Citi Research analyst Michael Rollins expected, it wasn’t a surprise.

“Lumen remains at the beginning of a multi-year transition to improve mass markets revenue with investment and improve business segment performance, while absorbing ongoing legacy headwinds,” he wrote. “We believe both the monetization and dividend cut to zero are the right moves to improve its financial flexibility to prioritize future operating investments and manage net debt leverage.”

Rollins continues to rate the shares at neutral.

Cowen & Co.’s Gregory Williams agreed that the dividend cut was “long-awaited,” and he saw opportunity ahead for the company.

Lumen “can turbocharge its growth initiatives” such as automation and fiber-to-the-home, “with a sharper focus while removing a major stock overhang.”

He still anticipated choppy trading.

“As for the stock, expect volatility with a technical wash-out, though admittedly not many yield-oriented investors remaining, and an additional sell-off on the still-challenged fundamentals…counteracted by large short interest covering, and an eventual potential return for value investors, all bolstered with a buyback,” Williams wrote.

He maintained his market-perform rating on the stock while cutting his price target to $8 from $12, writing that “lackluster” third-quarter results…

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