Embarking on a rollercoaster ride reminiscent of a Phoenix soaring from the ashes, Lumen Technologies (LUMN) saw its stock price surge by a staggering 181% since the dawn of 2024, riding high on the AI wave. However, the crescendo of this rally hit a sudden discordant note with a short seller’s report, causing a swift downward spiral to the tune of an 18% decline this week.
Presently, Lumen Technologies boasts a market capitalization of $5.43 billion, lingering over 89% below its historic peak. The question that beckons is whether this recent bearish retreat offers discerning investors a tempting buy-low opportunity in the realm of this AI stock.
Lumen Technologies Ascends Post Q2 Results
Lumen Technologies, a purveyor of integrated communications for both residential and business clientele, orchestrates its operations through two core segments. The Business arm caters to enterprise and commercial customers via a bouquet of products and services, while the Mass Markets division serenades consumer and small business cohorts.
During the tempestuous quarter of 2024, Lumen Technologies hummed a somber tune of an adjusted loss amounting to $0.13 per share against a backdrop of $3.27 billion in sales. This is a stark contrast to Wall Street’s anticipatory symphony of revenue at $3.25 billion and net losses of $0.04 per share. Witnessing a year-over-year sales dip of over 10%, the tune played by Lumen fell short of the tuneful $0.10 earnings per share from the corresponding quarter the previous year.
Despite this somber melody, the crescendo of LUMN’s stock price crescendoed by over 30% in a single trading day post its Q2 recital. Investors were lured by the siren song of the company’s upbeat forward guidance pendant. Lumen envisaged a full-year free cash flow oscillating between $1 billion and $1.2 billion in the clamor of 2024, standing firm in stark contrast to its earlier muted projection spaced between $100 million and $300 million. LUMN’s valuation at a forward cash flow multiple of a mere 5 times reverberates with a tale of bargain.
Kerrisdale Capital Casts Shadows on Lumen Technologies
Unleashing a torrential downpour of skepticism, Kerrisdale Capital hurled jabs at Lumen Technologies on August 27 via a critical research report. Citing concerns about Lumen’s penchant for scripting a fairy tale revival anchored on the AI narrative, while wading through the murky waters of a withering core business entrenched in a labyrinth of debt.
The report lamented, “Persistently entrenched in the darker alleys of underperformance, Lumen, with EBITDA plunging by a dismal -13%, is now held hostage in the company of telecom competitors basking in sunlit forecasts of growth, lower debt burdens, and appealing dividends. The allure of chasing the elusive next AI sensation may be tempting, however, an investment in Lumen at these levels seemingly lacks not just artificial intelligence but good old-fashioned wisdom.”
Diving deeper into the report’s narrative reveals disheartening projections—Lumen’s touted $5 billion deal boils down to a meager return of less than a billion, painting a gloomy picture of a paltry $21 million annual profit from operations and maintenance, barely a drop in debt-ridden waters. Q2 bore witness to a chilling 8.6% decline in Lumen’s core business revenue, etching a new nadir in the annals of the company’s history.
Where Does LUMN Stock Sail?
Echoing the laments of pessimistic Wall Street analysts, the short seller report harmonizes with sell-side sentiments on Lumen Technologies. The recent AI-induced heights scaled by LUMN finds itself juxtaposed against the looming shadow of an impending financial convalescence.
Among the ten analysts casting their gaze upon LUMN stock, seven opt for a lukewarm “hold,” one sings the tune of “moderate sell,” whilst two blare the horns of “strong sell,” harmonizing to rhyme to an overall somber “hold.”
Moreover, the grand ship of LUMN finds its rudder steered towards an average target price of $3.74, set adrift in waters approximately 27.5% below the current buoy where its stock price conveys signals of market movements.