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Lumen Surges 30% in a Month: Where Will the Stock Head From Here?
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Lumen Technologies, Inc.’s (LUMN - Free Report) shares have surged 29.6% in the past month, outpacing the S&P 500 composite and Diversified Communications Services sector’s growth of 15.4% and 6.3%, respectively.
Lumen also outperformed some of its peers, such as Verizon Communications (VZ - Free Report) , AT&T (T - Free Report) , and T-Mobile US, Inc. (TMUS - Free Report) . Verizon and AT&T have registered gains of 3.2% and 6.4% respectively, while T-Mobile has lost 3.7% over the same time frame.
Image Source: Zacks Investment Research
Closing at $3.98 as of yesterday’s trading session, LUMN stock is currently trading way below its 52-week high of $10.33.
With a significant pullback, investors are likely to contemplate the stock’s growth trajectory. Will the company’s efforts to capitalize on the fiber opportunity bear fruit and propel the stock upwards? Should investors stay invested or make an exit?
Let us analyze the stock in detail to ascertain if it is worth investment consideration.
Tailwinds for LUMN
Increasing demand for Lumen's Private Connectivity Fabric (“PCF”) solutions amid rapid AI proliferation is emerging as an encouraging development. Lumen has secured a total of $8.5 billion in PCF deals in 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.
On the last earnings call, Lumen added that it continues to see overall PCF demand for both large deal CST levels and at the smaller enterprise deal level. Increasing demand for Lumen services, particularly for Waves and IP in its large enterprise and mid-market segments, remains a highlight. Investments in PCF are expected to create revenue streams and strengthen Lumen’s position as a relevant infrastructure player going ahead.
The company also remains focused on “cloudifying” telecom and driving the adoption of its network-as-a-service (NaaS) solutions. Lumen’s strong network capabilities, integrated hosting and network solutions are likely to promote growth in the cloud business. Its managed and cloud services are key differentiators from other players in the market. Lumen highlighted that it has more than 500 customers currently using NaaS services in 2024.
Some of its NaaS solutions with private connections include Lumen Ethernet On-Demand and Lumen IP-VPN (Internet Protocol Virtual Private Network) On-Demand. These solutions are designed to provide users with private cloud connections and augmented data safety and security. Lumen has introduced the Lumen Cloud Communications platform, a next-gen unified communications solution to gain a larger share of a $47 billion and growing cloud voice total addressable market.
Lumen Technologies, Inc. Price, Consensus and EPS Surprise
Lumen continues to progress with its turnaround and is striving to boost operational efficiency. The company is anticipating $1 billion in cost savings by the end of 2027 through planned infrastructure simplification across the network, product portfolio and IT. It is looking to integrate the network across all four different architectures by engineering them into one simplified, standardized network fabric. This integration will also aid in product portfolio simplification. It has also been leveraging AI tech to drive intelligence and automation. Management expects to significantly reduce the product count from thousands of product codes to a target of nearly 300. In the current year, it expects more than 250 million of run-rate cost benefit.
LUMN’s Compelling Valuation
From a valuation perspective, LUMN is trading at a massive discount. Going by its trailing 12-month price-to-sales ratio, LUMN is trading at a multiple of 0.3, much below the Technology Services industry’s ratio of 1.47.
Image Source: Zacks Investment Research
In comparison, Verizon, AT&T and T-Mobile are trading at multiples of 1.38, 1.65 and 3.38 of compared with the Wireless National Industry’s multiple of 2.35.
Legacy Business Woes & Debt Concerns for LUMN
Lumen continues to witness weakness in the legacy business. In the first quarter of 2025, Lumen’s total revenues declined 3.3% year over year to $3,182 million. As Lumen shifts toward newer growth products like fiber and cloud-based offerings, the secular headwinds in the legacy business will continue to prove a strain on the top-line expansion at least in the near term.
For 2025, Lumen continues to expect adjusted EBITDA in the band of $3.2-$3.4 billion and capital expenditures to be between $4.1 billion and $4.3 billion. EBITDA in 2025 is expected to be below the levels of 2024, owing to the investments in transformation, along with higher startup costs for PCF sales and legacy revenue declines. Lumen expects EBITDA to significantly rebound in 2026 and be more than $3.5 billion. It also anticipates that the metric will register growth thereafter. Free cash flow is expected to be between $700 million and $900 million. Management added that free cash flow would be lumpy from quarter to quarter as it moves through the PCF builds.
Lumen has a very debt-heavy balance sheet. As of March 31, 2024, the company had $1.9 billion in cash and cash equivalents with $17.334 billion of long-term debt compared with the respective figures of $1.889 billion and $17.494 billion as of Dec. 31, 2024.
Moreover, focus on AI and cloudifying telecom is a positive, but these markets are rife with heavy competition, which could be a serious impediment to the top-line expansion for Lumen.
Analysts remain bearish as reflected in the downward estimate revision for the current year. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
Image Source: Zacks Investment Research
Conclusion: Hold LUMN for Now
Lumen is navigating a transformative period, aligning itself with the massive growth of AI, cloud computing and digital-telecom services. Increasing PCF demand and deals with tech giants are creating a strong foundation for growth. Expansion into NaaS markets is an additional tailwind. Extensive cost cuts and discounted valuation make LUMN a compelling investment opportunity.
However, near-term pressure from legacy business decline, heavy debt load and competitive risks remains concerning. While long-term prospects are promising, execution risks persist. Given the mixed picture, it might not be a prudent investment decision to bet on the stock at the moment, which carries a Zacks Rank #3 (Hold). For long term investors, staying invested seems prudent as long term prospects remain intact.
Image: Bigstock
Lumen Surges 30% in a Month: Where Will the Stock Head From Here?
Lumen Technologies, Inc.’s (LUMN - Free Report) shares have surged 29.6% in the past month, outpacing the S&P 500 composite and Diversified Communications Services sector’s growth of 15.4% and 6.3%, respectively.
Lumen also outperformed some of its peers, such as Verizon Communications (VZ - Free Report) , AT&T (T - Free Report) , and T-Mobile US, Inc. (TMUS - Free Report) . Verizon and AT&T have registered gains of 3.2% and 6.4% respectively, while T-Mobile has lost 3.7% over the same time frame.
Image Source: Zacks Investment Research
Closing at $3.98 as of yesterday’s trading session, LUMN stock is currently trading way below its 52-week high of $10.33.
With a significant pullback, investors are likely to contemplate the stock’s growth trajectory. Will the company’s efforts to capitalize on the fiber opportunity bear fruit and propel the stock upwards? Should investors stay invested or make an exit?
Let us analyze the stock in detail to ascertain if it is worth investment consideration.
Tailwinds for LUMN
Increasing demand for Lumen's Private Connectivity Fabric (“PCF”) solutions amid rapid AI proliferation is emerging as an encouraging development. Lumen has secured a total of $8.5 billion in PCF deals in 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.
On the last earnings call, Lumen added that it continues to see overall PCF demand for both large deal CST levels and at the smaller enterprise deal level. Increasing demand for Lumen services, particularly for Waves and IP in its large enterprise and mid-market segments, remains a highlight. Investments in PCF are expected to create revenue streams and strengthen Lumen’s position as a relevant infrastructure player going ahead.
The company also remains focused on “cloudifying” telecom and driving the adoption of its network-as-a-service (NaaS) solutions. Lumen’s strong network capabilities, integrated hosting and network solutions are likely to promote growth in the cloud business. Its managed and cloud services are key differentiators from other players in the market. Lumen highlighted that it has more than 500 customers currently using NaaS services in 2024.
Some of its NaaS solutions with private connections include Lumen Ethernet On-Demand and Lumen IP-VPN (Internet Protocol Virtual Private Network) On-Demand. These solutions are designed to provide users with private cloud connections and augmented data safety and security. Lumen has introduced the Lumen Cloud Communications platform, a next-gen unified communications solution to gain a larger share of a $47 billion and growing cloud voice total addressable market.
Lumen Technologies, Inc. Price, Consensus and EPS Surprise
Lumen Technologies, Inc. price-consensus-eps-surprise-chart | Lumen Technologies, Inc. Quote
Lumen continues to progress with its turnaround and is striving to boost operational efficiency. The company is anticipating $1 billion in cost savings by the end of 2027 through planned infrastructure simplification across the network, product portfolio and IT. It is looking to integrate the network across all four different architectures by engineering them into one simplified, standardized network fabric. This integration will also aid in product portfolio simplification. It has also been leveraging AI tech to drive intelligence and automation. Management expects to significantly reduce the product count from thousands of product codes to a target of nearly 300. In the current year, it expects more than 250 million of run-rate cost benefit.
LUMN’s Compelling Valuation
From a valuation perspective, LUMN is trading at a massive discount. Going by its trailing 12-month price-to-sales ratio, LUMN is trading at a multiple of 0.3, much below the Technology Services industry’s ratio of 1.47.
Image Source: Zacks Investment Research
In comparison, Verizon, AT&T and T-Mobile are trading at multiples of 1.38, 1.65 and 3.38 of compared with the Wireless National Industry’s multiple of 2.35.
Legacy Business Woes & Debt Concerns for LUMN
Lumen continues to witness weakness in the legacy business. In the first quarter of 2025, Lumen’s total revenues declined 3.3% year over year to $3,182 million. As Lumen shifts toward newer growth products like fiber and cloud-based offerings, the secular headwinds in the legacy business will continue to prove a strain on the top-line expansion at least in the near term.
For 2025, Lumen continues to expect adjusted EBITDA in the band of $3.2-$3.4 billion and capital expenditures to be between $4.1 billion and $4.3 billion. EBITDA in 2025 is expected to be below the levels of 2024, owing to the investments in transformation, along with higher startup costs for PCF sales and legacy revenue declines. Lumen expects EBITDA to significantly rebound in 2026 and be more than $3.5 billion. It also anticipates that the metric will register growth thereafter. Free cash flow is expected to be between $700 million and $900 million. Management added that free cash flow would be lumpy from quarter to quarter as it moves through the PCF builds.
Lumen has a very debt-heavy balance sheet. As of March 31, 2024, the company had $1.9 billion in cash and cash equivalents with $17.334 billion of long-term debt compared with the respective figures of $1.889 billion and $17.494 billion as of Dec. 31, 2024.
Moreover, focus on AI and cloudifying telecom is a positive, but these markets are rife with heavy competition, which could be a serious impediment to the top-line expansion for Lumen.
Analysts remain bearish as reflected in the downward estimate revision for the current year. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)
Image Source: Zacks Investment Research
Conclusion: Hold LUMN for Now
Lumen is navigating a transformative period, aligning itself with the massive growth of AI, cloud computing and digital-telecom services. Increasing PCF demand and deals with tech giants are creating a strong foundation for growth. Expansion into NaaS markets is an additional tailwind. Extensive cost cuts and discounted valuation make LUMN a compelling investment opportunity.
However, near-term pressure from legacy business decline, heavy debt load and competitive risks remains concerning. While long-term prospects are promising, execution risks persist. Given the mixed picture, it might not be a prudent investment decision to bet on the stock at the moment, which carries a Zacks Rank #3 (Hold). For long term investors, staying invested seems prudent as long term prospects remain intact.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here