Lumen's stock erodes further, sinking toward worst day in its history

By Emily Bary

Stock on pace for lowest close since October 1984

Lumen Technologies Inc. shares were flirting with their worst-ever daily performance Wednesday as news of an agreement with creditors failed to outweigh disappointing commentary on revenue-growth expectations.

The stock (LUMN) was off 24.3% in Wednesday morning trading and on track to record its largest one-day percentage decline on record. Lumen shares, which recently changed hands at $1.11, were on pace for their lowest close since Oct. 5, 1984, when they finished at $1.10.

"Revenue growth excluding other revenue did not improve in Q3, and management's expectation of better performance got pushed back until mid-2024," MoffettNathanson analyst Nick Del Deo wrote in a note to clients late Tuesday.

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Executives at the telecommunications company, once known as CenturyLink, have "implied that the company's results should get worse before they get better." But investors clearly left Tuesday's report with plenty of questions, including the one in the title of Del Deo's note: "How Much Worse Before How Much Better?"

"The nature of this business is such that changes in growth tend to happen gradually, not rapidly," he added. "The new management team previously argued that it could start to bend the revenue growth curve -- to be clear, we've been skeptical of dramatic improvements along the lines of whatmanagement called for at its analyst day several months ago -- such that benefits would start showing up in a visible way in early 2024."

Del Deo set a sell rating and $1 target price on Lumen shares.

Citi Research analyst Michael Rollins highlighted that Lumen is scaling back its fiber-deployment plans.

"We are surprised by Lumen's decision to slow the planned pace of annual fiber builds given the favorable opportunities to leverage these investments to improve its mass markets revenue and cash flow," he wrote.

Rollins is further concerned "that the turnaround may take longer and be more costly, especially with some of the disclosed capital constraints."

He, too, gave the stock a sell rating, with a target price of $1.50.

Frank Louthan of Raymond James stayed on the sidelines on the stock, while highlighting the company's work to reach an agreement with its creditors.

"Management is in the process of getting its creditors on board to refinance its balance sheet, push out maturities, get a new revolver and refinance near-term maturities," he wrote. "This is a heavy lift that will make the current complex capital structure even more complicated with a significantly higher blended rate of interest, in our opinion."

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Louthan said he thinks Lumen needs to show positive organic revenue growth to gain back investor support, "and the path for that is still choppy and the potential debt agreement with creditors makes the outlook more challenging."

He maintained a market-perform rating on the stock.

-Emily Bary

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11-01-23 1115ET

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