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Comments (132)

Gerard Hallaren, CFA profile picture
An interesting squib in today's Barron's, July 26th 2021. Pacific gas and electric expects it will cost $1 to 2 million per mile to replace electrical cables. I've got to believe that most of that is exurban or rural. I still think it would cost at least half a $T to replace Lumen's Network. CertainlyLumen is not returning enough to justify the one half trillion replacement value of the network.
Looks like LUMN may end the week with a 14% + increase if they close up 4.0% today. They are helping my Portfolio gain over 4.5% this week. May reach a 60% plus gain from date of inception 4/15/2020. Profile holdings will be updated after today's close. Having fun and enjoying the ride. 😎
Look, the problem is simple. While you and Justin W are forgiving like a girlfriend in an abusive relationship, WS has not forgotten Storey sold them an utter and complete pig in a poke 4 years ago. NOTHING he said at that time was true or correct, it was all hogwash BS. He will never get any credit until he makes up for that . So until he produces actual growth here, and no one was fooled by that silly name change, the stock will go a whole lot of nowhere, and deservedly so as it is still a melting ice cube.
@Simeroth1 I do have to say that writers have been talking about Lumen/Century Link's fiber assets for YEARS on Seeking Alpha, and the stock has only gone down. Whatever their fiber assets, it clearly hasn't been enough to offset the losses from the legacy businesses. I'm long LUMN but remain skeptical.
What happens when Starlink is running in 5 years and everyone in the world can get cheap, fast satellite high speed Internet?
@Chestrkwll as long as the multiplexing scheme is worked out and everyone is in tune to buying repeaters for the countless dead zones that come with Satellite. Sitting in your car listening to Sirius is an example. Also, the satellite network to account for the IoT accept requires much review. Cell phones will become internet phones think spectrum. Fiber is here to stay
@d49maxwell that's good....I own 8000 shares.....
Addams Family Trust profile picture
dont they need someone to clean up all the space junk first?
03 May 2021
Do you all remember the game "red light, green light, one, two, three," as kids? Then be clear about this! There have been dozens of authors with analysis' like being addressed here, who have withered in the wind never to never be heard from again as part of this company's prospects especially its 21 year history dovetailing it to The Level 3 growth engine inside. Wall Street has hated this company since Gates, Buffett, Scott and Crowe hatched it in 1998! They have done everything legal and illegal to suppress its stock price inverting supply/demand curves as part of the Wall Street quoting machine. So, not until Wall Street says "GREEN LIGHT!" will this stock who continues to eat its "common" shareholders, ever pay off to resemble a "fair value" connecting to what remains excellent numbers today. Moreover, you have a Storey who is not credible because another dynamic CEO controlling the powerful, ubiquitous fiber network assets this one has underneath the covers, would have been growing our top line "exponentially" by now!

Viel Glück!
@Stut Ich habe einen Gewinn von 24% und LUMN gewinnt weiterhin wie heute. Die Dividende ist sehr gut auch der Cashflow. Ich bin jetzt lang.
04 May 2021
@Aristocrat & Dividend King Investor Gute arbeit, mein Freund. Das Problem bleibt jedoch CEO Jeff Storey, der nicht in der Lage ist, die exponentiellen Umsätze und hohen Margen zu erzielen, die der Tiefe, Breite und dem Umfang des Netzwerks entsprechen.
Thomas Richmond profile picture
@Stut Interesting, didn't know. That is good to know that they have a history of untrustworthiness.
Thanks. Enjoyed your article. The future for LUMN sounds bright. I liked it after I did my analysist on the company last year. It is up 24% since my purchase in 2020. One of my larger holdings share wise. Maybe I should double up...
Thomas Richmond profile picture
@Aristocrat & Dividend King Investor That is cool to hear! I am up a good chunk as well. Even better since you're probably making near a 10% yield on it too. As far as buying more, I might ease in some more around $12. I guess it's better to get the majority of the gains than pinch pennies.
Atlanta investor profile picture
The stock turns around when there are revenue gains or the path to rising revenue is clear— that’s not this quarter and not clear if it’s this year. The dividend provides some support as long as its covered. There’s some pressure on management to perform— hopefully they can rise to the occasion.
Thomas Richmond profile picture
@Atlanta investor Good point. If management is incompetent and can't really grow revenue positively, investors could be in deep trouble. That makes sense. Hopefully, management can do something; I see it reassuring they've paid down a lot of debt and cut costs
@Atlanta investor well you pay big money for certainty.
Guys, great comments. LUMN needs a catalyst ! I would suggest that they
separate the landline business from the fiber optic side back into two companies, or else sell some excess fiber assets to accelerate debt reduction. I believe that the only reason that Level 3 agreed to the merger was because of the Qwest network which they coveted. Great value here !
Thomas Richmond profile picture
@albo king Thank you! That's a good point; Level 3 gained Qwest, CenturyLink gained growth. Smart. Next year, they're splitting their segments into legacy and growth - maybe that can be like the company splitting, and help them focus on the right stuff.
@albo king the landline business will naturally melt away. and the fiber/data business has a catalyst called 5G
Another view point with companies like LUMN...are they popular. The short answer is NO! Once LUMN spins off the business that was CenturyLink prior to the acquisition of Level3 the game changes. This will make the CAF Revenue a mute point. The proceeds go to paying down debt to obtain the 2.75 ratio or better. The full 5G unveiling has been delayed by a year+. The key growth is edge computing/cloud with embedded security on a global scale. I still think LUMN is a acquisition candidate.
Thomas Richmond profile picture
@d49maxwell Definitely a downside with having to pay down so much debt. If Lumen was acquired - that would be very good for the share price I believe. Also - what is CAF revenue? Thank you
@Thomas Richmond CAF is the Connect America Fund - the mission here, spearheaded by the FCC, is to accelerate broadband build out and availability to ~20ish M Americans who lack access to the infrastructure capable of providing high-speed internet. The subsidy was provided to CenturyLink and they've received ~$500M/year since 2015 and this will no longer be a revenue stream on the income statement, I believe it's getting phased out from now until sometime in 2022.
@Quasi_ValueInvestor yes CAF is being phased out and the government is supposed to be looking at the next phase of subsidy(ies); don't' hold your breath. The commodity that counts is the countless right of way easements that LUMN currently has with the existing network. This is what makes sense for any perspective buyer for this side of the business. It is no secret it will be straight up sold or spun off in the near future.
I’m not so sure Lumen is misunderstood, after all, even the “growth areas” of the business barely grow...

What good is this perceived moat if it doesn’t result in being able to charge more?

Fair value by the author and intrinsic value being touted by Lumen leadership at 2 to 3 times the current PPS sure sound good BUT insiders seem to have little interest in purchasing shares..

I have a hard time squaring those two facts. CEO says Lumen is worth $30/share yet he has the opportunity to load up at 10-13. Why doesn’t he do it?
Thomas Richmond profile picture
@TMV1 You know, that's a very good point. I've been wondering why they don't repurchase shares. Maybe it's because they're really trying to build a sturdy foundation by paying down debt? I hope that's their goal. But it seems like they'd do even better to repurchase shares maybe.
usser661 profile picture
@Thomas Richmond why take equity risk by buying back shares when they can reduce debt at low interest rates?
@TMV1 Curious as to why all of your comment history is essentially bashing LUMN from their business model, executive team, and current share price while also mentioning that you're an investor in the company...

Why invest in a company that you have absolutely 0 belief in growth potential, disagree with their lack of share buybacks, and upset about their dividend cut... I'd maybe understand if you were on the sidelines and providing your $0.02 but you're invested in the company...
In in word: agreed ! The over 450,000 miles of terrestrial and under seas fiber optic cables provide a wide moat as datacenters ( for thermal reasons) are being built all around the world in icy countries have to exchange bit and bytes as data usage increases in volume and speed.
Thomas Richmond profile picture
@LPeter Awesome man! That's interesting. Is it tougher for other companies to replicate their wires especially in colder areas?
usser661 profile picture
@Thomas Richmond water intrusion in a fiber cable will not prevent the passage of light. Gel encapsulates the long haul splices but ice can break the glass and cause problems.
Nils de Graaf profile picture
Why are all busness lines, except broadband, declining? And why will that stop?
How is the bottom line re broadband doing, is low margin TV being replaced by higher margin high speed internet?
Thomas Richmond profile picture
@Nils de Graaf I believe that is the goal - to replace declining TV and voice with high speed internet. To answer your first questions - I don't know entirely why it's just broadband increasing, I'll have to do more research on it.
Not sure how you got 1% tax of revenue...that's quite aggressive. Especially if you consider that the previous years had favorability due to loss carryforwards. I'd much prefer 2-3%, perhaps split the baby at 2.5%. Considering that your Operating Margin is assumed consistent at 17%, that's a <6% tax rate which doesn't seem reasonable. 2% is roughly 11% effective rate on income which accounting for one-offs and various accounting tricks is at least understandable.
Also hard to imagine that corporate tax rates will stay at 21% (regardless of where your politics lie) and they'll likely increase to 25%+.

Otherwise, this was a great general overview. Agree with the overall picture though I think the ILEC decline is underestimated. The price is unfairly hammered because of it, but all the bullish sentiment is too cavalier in discarding the downside. The upside is all in the moat and fiber network.
Thomas Richmond profile picture
@Shanghaista Thanks for letting me know about the taxes - I don't know too much about taxes yet and kind of guesstimated that one. And thanks for your feedback
Gerard Hallaren, CFA profile picture
@Shanghaista should corporate tax rates increase, the 5.5B NOL would increase. NOls in general will likely become more attractive.
Thomas Richmond profile picture
@bearcub1936 Thank you :)
wsoyke profile picture
Someone liked the article. Mid day up 2%.
Good article. I still have problems understanding why the growth in fiber revenue/earnings can't exceed the legacy loss.
SneakyScripts profile picture
@wsoyke management has been focused on integrating Level 3 and reducing debt the last few years. We are, hopefully, at an inflection point now that management is ready to focus on growth. Their Edge platform has real potential IMO
wsoyke profile picture
Hopefully you are right. But how much focus does debt reduction take? A couple accountants? And to focus on growth, how about hiring some sales people to work the large enterprise business and IGAM?
SneakyScripts profile picture
@wsoyke the point being, that's billions of dollars going toward reducing debt, not just some man-hours from a few accountants. I would suggest checking out their IR presentations, the company's high level strategy is laid out nicely.
"Feel free to mentally adjust any of my work, or send me a comment if you find any improvements that can be made. If you find a mistake, this wouldn't be the first or the last time I messed up a valuation, and I really appreciate your feedback because I'm always trying to learn."

I'm a fan of modesty and SA could need a bit more of that.
Thomas Richmond profile picture
@Lupf Thanks, really appreciate that. I've still got a lot to learn, and lots of really great readers like you to learn from :)
It's a pure income stock for me. I trade it with covered calls and get a double digit annualized return. Of course my average cost is around $20/share, so I'm not that smart!
@doc47 sounds like plenty of share price room to average down $! Long LUMN
@doc47 Know that feeling been holding this POS to long as well
Space Muppet profile picture
@doc47 hey you know you can not buy every thing cheap some times an investment goes the wrong way, i made and making a lot of money in 15 years of investing but still bought CTL for 24$... now my average is 19 :-((
Recognizing a bad investment doesn’t mean you are not smart but for sure will make you smarter
autofocus111 profile picture
VMW is being spun off by DELL. Would it make sense for LUMN and VMW to merge? Multi-cloud and pipes bundled could be a value-proposition to big enterprise IT as they transition to hybrid-cloud and expand SD-WAN/Edge service coverage. Telcos could benefit from LUMN pipe wholesale contracts integrated with VMW SW for NFV/5G/O-RAN network buildout. LUMN-VMW could remain positioned largely neutral from the perspective of the BigCloud/Telco/HW vendors. Or am I missing something with this picture? Appreciate any thoughts and insights on this possibility.
SneakyScripts profile picture
@autofocus111 interesting thought, Edge could certainly benefit from expanded products and services in the virtual space. I guess the question is would a merger make more sense than building and maintaining their current partnership
Thomas Richmond profile picture
@autofocus111 Very interesting. I don't know much about VMW. We shall see
autofocus111 profile picture
@Thomas Richmond I'm trying to wrap my head around what synergies such a merger would achieve. VMW is a complex software company and it's not obvious how well the two would fit together or what leverage they would gain. As @petepete stated, perhaps a partnership here is the preferred approach.

VMW started off with breakthrough compute/storage virtualization technology and grew to dominate IT datacenters. The emergence of public clouds posed a huge threat to their user base, but they were slow to recognize it. Following a failed attempt to build a public cloud, they quickly shifted strategy, and instead allied with all the 'big cloud' providers to develop a neutral multi-cloud platform that enables enterprises to transition their IT datacenters to hybrid/multi-cloud/edge operations.

During this time they also focused on network virtualization. The former CEO Pat Gelsinger (now CEO of INTC) stated numerous times that he saw network virtualization as an even bigger opportunity than compute virtualization. It was under his tenure that VMW built out a network virtualization platform.

LUMNs vast global fibre network connects many endpoints (company datacenters, company branches, edge nodes, work-from-home internet, and 5G wireless access points) to each other and the public cloud infrastructure of AMZN, MSFT, GOOG etc. VMWs software runs at these endpoints and clouds (and now increasingly as an overlay on network hardware). The two are essentially complementary.

How a combined company might achieve synergies is difficult to identify to a layperson like me. It's also not clear if the two might pose a competitive threat to other telcos or generally work to benefit everyone involved. What's evident to me is that virtualization is headed to the telcos, and VMW is going to be a big part of that transformation.

Anyway that's all I have. Let the big corporate minds figure it all out :)

>>>With service providers evolving from NFV networks to cloud-native and containerized networks, VMware has evolved its VMware vCloud NFV solution to Telco Cloud Infrastructure. The goal is to give service providers a consistent, unified platform for delving virtual network functions (VNFs) and, eventually, cloud-native functions (CNFs) across telco network. By using cloud-native with VMware's Telco Cloud Platform, service providers will be able to get their services and applications to market faster, according to VMware. There are a number of service providers that have already deployed virtualized infrastructures, but now they want to move towards cloud-native.. While cloud service providers are already using cloud-native capabilities, Ayyar said telcos would be in a hybrid mode of VNFs and CNFS for a while yet. Ayyar said more than 120 service providers are using VMware's Telco Cloud, which didn’t include its 5G Telco Cloud Platform since it became generally available last month. Working with 35 partners, VMware has validated more than 180 network functions to date with most of them third-party VNFs along with VMware's SD-WAN and load balancing VNFs, among others. Ayyar said vendors such as Ericsson and Nokia were working on getting their containerized network functions validated on VMware's platform. While VNFs have historically been difficult to onboard, VMware said VNFs and CNFs could be onboarded more quickly after passing its certification.


>>>VMware, Inc. (NYSE: VMW) today showcased how communications service providers (CSPs) across the world – including Millicom, Singtel, Telecom Italia, Telia Company and TIM Brasil – are adopting VMware’s Telco Cloud platform to accelerate time to revenue, automate service lifecycle, and simplify operations management. The company also unveiled new capabilities across its Telco and Edge Cloud product portfolio, including innovations to its telco cloud core, edge and RAN offerings.

La Marque profile picture
Roughly 25% of LUMN is consumer facing with the bulk of that the declining analog business. They are well on the way to losing every analog customer. The legacy CenturyLink should be spending more on total fiber replacement in the franchised areas. Simply put: until the top line improves, the stock is going downward or nowhere.
Giu_ve profile picture
@La Marque shouldn't intelligent investor accumulate shares until top line improve if they believe in it if course?

I do.
La Marque profile picture
@Giu_ve Only if one believes that the FCF is safe to continue paying the dividend and buying back shares and paying down debt all at the same time. The legacy business of CenturyLink is going to be as an ISP only. The enterprise business is what the future of the company is and that is a very crowded space. Margins as both enterprise services and a global internet backbone are under pressure; further consolidation is coming. Whether LUMN survives intact is not clear.
Justin Wiedeman profile picture
@La Marque

Buying back shares? Do you actually know anything about this company?
Retire2020 profile picture
Great article. Thanks.
Thomas Richmond profile picture
@Retire2020 Thank you :)
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