Lumen Earnings: Debt Restructuring Looks Like a Sign That Struggles Will Continue

Lumen was busy in the third quarter, finalizing the divestiture of its European business and restructuring a chunk of debt. Lackluster operating results were consistent with what the new management team has foreshadowed, but encouraging signs are not yet apparent. We believe the company remains undervalued, but the threat of insolvency continues to grow as the debt restructure buys time but otherwise puts the firm on weaker financial footing. In addition, management’s sensing a need to take an otherwise unfavorable deal so that it could extend maturities leads us to believe recent trends will persist. We are changing our uncertainty rating to Extreme and reducing our fair value estimate to $1.50 from $5, which balances the value we believe Lumen has with its precarious current financial and operating positions.