Few Positives in Lumen’s Q2, but It Still Produces Cash, Is Cheap, and Is Transforming Its Business

Lumen’s poor second-quarter sales results were about what we expected and were clouded by noise, including pressure from foreign-currency movements, a small divestiture, and the loss of Connect America Fund Phase II revenue. More disappointing to us was poor margin performance. A dour narrative pervaded most of Lumen’s second quarter, as the company is seeing pressure from multiple angles of the macroeconomic environment—inflation, supply chain issues, and customer reticence, to name a few. In all, Lumen is a story of a no-moat company not performing very well and citing headwinds that stronger performers—or companies with durable moats—often overcome.