Lumen Long Analysis
Lumen (more commonly known as CenturyLink) appears to be a failing company sinking in debt. Down more than 70% from its ATH, it has been slow to adapt to a changing market, cut its dividend by more than 50%, and reported a staggering $5.3 billion net loss in 2019. These factors have driven investors away from LUMN, dropping the share price to its lowest point since 1992. Why would anyone buy into this company?
Dividend Sustainability
Although LUMN has cut its dividend from $0.54 to $0.25, it currently holds a yield of 8.7% annually. Dividend yields are usually at these high levels because investors feel that the sustainability of these payouts have significant risks. Lumen's dividend payout ratio for the last four quarters is a dangerous 84%, meaning that the amount that LUMN paid to its shareholders made up 84% of its net income this last quarter. However, net income is an inaccurate indicator of LUMN's ability to pay its dividends when compared to free cash flow, as net income is affected by non-cash expenses such as depreciation and amortization. LUMN's free-cash-flow dividend payout ratio for the last four quarters sits at a much more comfortable 39%. This suggests that LUMN is unlikely to cut its dividend any further. Furthermore, LUMN did not decrease its dividend because of its inability to pay. Rather, the cut was issued in order to free up money to pay off the debt it had leveraged in its acquisition of Level 3 Communications.
Level 3 Communications and Fiber Optic Internet
LUMN 's acquisition of Level 3 Communications in 2017 marked a fundamental shift in Lumen's business model. Not only was Level 3 the largest competitive local exchange carrier, but it was also the third-largest provider of fiber-optic internet access in the United States. Although revenue has been decreasing from standard broadband and landline services, I believe LUMN shows promise in continuing to increase its profitability. It has already begun showing positive data, increasing its operating cash flow by more than 70% from 2017-2019 and continuing to paying off its long-term debt. It also has a current P/E ratio of 9.72, far below the SPY 's ratio of 38.96.
Entry Point
Share Price recently broke out of resistance at $11.50 before breaking the pre-covid high, ultimately reaching a price of $16.60 before reversing back to the $11.50 range. Previous resistance at $11.50 could possibly provide LUMN with support. I believe that it is also worth mentioning that the 200-hour exponential moving average could provide additional support at that range. This suggests that the current price could be an optimal entry point. It is also possible that it could break through support at the $11.50 range where it would likely find support in the $9.75 range.
Dividend Sustainability
Although LUMN has cut its dividend from $0.54 to $0.25, it currently holds a yield of 8.7% annually. Dividend yields are usually at these high levels because investors feel that the sustainability of these payouts have significant risks. Lumen's dividend payout ratio for the last four quarters is a dangerous 84%, meaning that the amount that LUMN paid to its shareholders made up 84% of its net income this last quarter. However, net income is an inaccurate indicator of LUMN's ability to pay its dividends when compared to free cash flow, as net income is affected by non-cash expenses such as depreciation and amortization. LUMN's free-cash-flow dividend payout ratio for the last four quarters sits at a much more comfortable 39%. This suggests that LUMN is unlikely to cut its dividend any further. Furthermore, LUMN did not decrease its dividend because of its inability to pay. Rather, the cut was issued in order to free up money to pay off the debt it had leveraged in its acquisition of Level 3 Communications.
Level 3 Communications and Fiber Optic Internet
LUMN 's acquisition of Level 3 Communications in 2017 marked a fundamental shift in Lumen's business model. Not only was Level 3 the largest competitive local exchange carrier, but it was also the third-largest provider of fiber-optic internet access in the United States. Although revenue has been decreasing from standard broadband and landline services, I believe LUMN shows promise in continuing to increase its profitability. It has already begun showing positive data, increasing its operating cash flow by more than 70% from 2017-2019 and continuing to paying off its long-term debt. It also has a current P/E ratio of 9.72, far below the SPY 's ratio of 38.96.
Entry Point
Share Price recently broke out of resistance at $11.50 before breaking the pre-covid high, ultimately reaching a price of $16.60 before reversing back to the $11.50 range. Previous resistance at $11.50 could possibly provide LUMN with support. I believe that it is also worth mentioning that the 200-hour exponential moving average could provide additional support at that range. This suggests that the current price could be an optimal entry point. It is also possible that it could break through support at the $11.50 range where it would likely find support in the $9.75 range.
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