$LUMN A Long Term OptionTelecommunications giant Lumen Technology (NYSE: LUMN) is in the process of turning around its business as it looks to keep up with the market. While LUMN stock is down 60% YTD, the company’s turnaround plan appears to be moving in the right direction which is backed up by the high institutional ownership in the stock. With this in mind, LUMN is currently trading near a 35-year low – making its current PPS an attractive entry in anticipation of a rebound.
LUMN Fundamentals
The transformation LUMN is undergoing to offer more digital services to keep up with the market has been costly. Since the start of the year, LUMN stock has been down almost 60%, and earlier this month, after LUMN released its Q1 2023, many analysts cut their price targets for the stock due to the $19 billion debt load on its balance sheet. LUMN has also been seeing a relatively high short interest of 13.68%, which reflects the negative sentiment some of the investors have toward LUMN.
However, LUMN appears to be moving in the right direction to successfully turn around its business. Although LUMN’s cash burn was expected to increase due to the transformation of its business, the company successfully reduced its operating costs YoY in Q1 by 7%. At the same time, fiber installations exceeded their copper counterparts in Q1 and this gap is expected to widen in the future. All of these metrics are strong proof that LUMN’s transformation could bear fruit in the future.
This sentiment is backed up by LUMN’s institutional ownership since institutions own nearly 82% of the company. Given that institutions have kept their investment in the company so far is telling that the company’s plan has a high chance of success which would reflect on the LUMN stock price in the end.
However, a major risk that may derail LUMN is its excessive debt load of $19 billion. With this in mind, LUMN has been actively addressing this risk as it reduced its principal debt balance by $620 million through exchange offers for senior notes last March. In addition, LUMN is looking to allocate all proceeds from its $1.8 billion EMEA business sale to reduce its debt. Based on this, the LUMN stock forecast appears to be bright for 2023 and beyond.
In the meantime, LUMN stock is trading near a 35-year low which it has historically bounced off to gain 15% at least. With that in mind, LUMN stock could be one to buy at current levels in anticipation of a bounce in the near term. Meanwhile, LUMN’s current PPS could prove to be a bargain for investors bullish on the company’s turnaround plan.
LUMN Financials
In its Q1 2023 report, LUMN’s assets slightly decreased from $5.420 billion to $5.405 billion, and its cash and cash equivalents decreased 8% YoY from $1.25 billion to $1.148 billion. LUMN’s total liabilities saw a slight increase of 1.8% YoY from $35.1 billion to $34.5 billion.
Revenue also decreased 20% YoY from $4.676 billion to $3.738 billion. Operating costs decreased 7% from $3.59 billion to $3.34 billion, which contributed to operating income declining nearly 64% YoY from $1.08 billion to $0.390 billion, which amounted to a net income of $511 million – a 14% decrease YoY.
Technical Analysis
LUMN stock’s trend is neutral with the stock trading in a sideways channel between $2.1 and $2.59. Looking at the indicators the stock is trading below the 21, 50, and 200 MAs which are bearish indications. However, the RSI is oversold at 21 and the MACD is approaching a bullish crossover.
As for the fundamentals, LUMN stock just witnessed a catalyst earlier this month in its Q1 2023 earnings release, following which the stock dropped near its 52-week low. With this in mind, LUMN is trading near its $2.1 support and is oversold at the moment which makes it a strong candidate to run in the near term.
LUMN Forecast
LUMN is currently in the middle of transforming its business. Some analysts believe the risks of the $19 billion in debt outweigh the rewards, while institutions are still holding onto their shares in LUMN stock believing that it is taking steady steps toward stability. LUMN stock is also trading near its 30-year low, which it has historically bounced off and gained more than 15%. As the market’s opinion stays split, LUMN remains a stock to watch amidst its turnaround attempt.
