Lumen Earnings: Signs of a Turnaround Are Not Yet Apparent

Lumen’s second-quarter earnings were poor, as expected, and are tracking full-year guidance. Management continues sounding an optimistic tone about its transition to more modern services, but sales declines are continuing at the same pace as the past few years. Despite its struggles, Lumen is undervalued relative to our $5 fair value estimate, which is underpinned by a forecast that doesn’t assume a drastic improvement. That said, we don’t expect the stock can move much higher until the business improves and quells investors’ fears, which we don’t expect in the next few quarters. We expect Lumen will be able to pay off all debt maturing over the next three years, but if Lumen’s financial performance doesn't improve by the time it reaches its large debt maturity in 2027, we question its ability to maintain adequate liquidity.