Lumen Technologies, Inc LUMN is looking to offload the consumer fiber business as the company phases out its legacy mass markets business and strives to reduce debt load, according to a report from Reuters.
Citing sources familiar with the matter, Reuters added that Lumen has sought assistance from Goldman Sachs to understand interest from potential buyers (including the company’s rivals) for its fiber unit. Further, LUMN might just sell a stake or get into a joint venture deal with a partner.
Citing sources, Reuters noted that the deal could be valued in the range of $6-$9 billion, subject to the business parts Lumen is willing to sell and the structure of the deal.
Lumen Technologies, Inc. Price and Consensus
Lumen Technologies, Inc. price-consensus-chart | Lumen Technologies, Inc. Quote
Reuters also added that the talks are in early stages and nothing is guaranteed. There was no official comment on the matter from Lumen.
The deal will necessitate the splitting up of the fiber business, as the company is not planning to sell the enterprise fiber operations, added Reuters.
Pivot to AI Amid Secular Headwinds in Legacy Business
Lumen has been witnessing secular headwinds in its legacy business for some time now. In the third quarter of 2024, Lumen’s total revenues declined 11.5% year over year to $3,211 million. The decline was due to the negative impact of divestitures, commercial agreements and the sale of the CDN business.
The company has made a pivot to AI to boost its performance. The demand for the company’s PCF solutions has been emerging as an encouraging development. Lumen secured an additional $3 billion in incremental PCF deals, bringing the total to $8 billion in new PCF sales since June 2024. As AI needs surge, large companies across various industries are urgently seeking fiber capacity, which is becoming highly valuable and potentially scarce.
Lumen has inked deals with various tech giants like Microsoft, Amazon, Google Cloud and Meta Platforms to provide the network capabilities for AI innovation. Increasing demand for Lumen services, particularly for Waves and IP in its large enterprise and mid-market segments remains a highlight.
Lumen raised its free cash flow guidance for 2024, driven by higher cash flows associated with PCF sales growth. For 2024, free cash flow is now anticipated to be between $1.2 billion and $1.4 billion. Earlier, the company expected free cash flow in the range of $1-$1.2 billion.
However, Lumen notes that given the overall business trends and initial cost impacts from the incremental PCF sales, it expects 2024 EBITDA at the low end of the guided range. The company continues to expect 2025 EBITDA to be below the levels of 2024, owing to the investments in transformation costs along with higher startup costs for PCF sales and legacy revenue declines. Lumen expects EBITDA to significantly rebound in 2026 and register growth thereafter.
LUMN’s Zacks Rank and Stock Price Movement
At present, LUMN carries a Zacks Rank #3 (Hold). In the past year, shares have surged 248.2%, outpacing the S&P 500 composite and sub-industry’s growth of 24.4% and 48%, respectively. Yesterday, LUMN was up 4.7% and closed the session at $6.06.
Price Performance
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Stocks to Consider
Some better-ranked stocks from the broader technology space are Plexus Corp., Inc. PLXS, InterDigital, Inc. IDCC and Celestica CLS, each presently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PLXS’ fiscal 2025 EPS is pegged at $6.79, unchanged in the past seven days. PLXS’ earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing once, with the average surprise being 10.3%. Its shares have increased 47.5% in the past year.
The Zacks Consensus Estimate for IDCC’s 2024 earnings is pegged at $15.22, up 12.5% in the past 30 days. IDCC’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 163.7%. Its shares have surged 70.1% in the past year.
The Zacks Consensus Estimate for CLS’ 2024 EPS is pegged at $3.85, up 5.5% in the past 60 days. Celestica’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 13.2%. The stock has inched up 213.6% in the past year.
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