TITAN - 5G - Lumen Tech. $LUMN - The 4th Industrial RevolutionI am ultra bullish on Smart cities, AI, edge computing, 5G/6G telecommunications, cybersecurity and AR/VR. Lumen Technologies (CenturyLink) seems to be a sleeping giant that checks all those boxes. Lumen is facing a similar situation as Nokia and Blackberry as value company which is about to enter a second growth cycle, and like Palantir Technologies, it is facing a situation of massive short selling pressure during institutional accumulation. The ruthless manipulation after earnings beat signals to me how bullish institutions are on the company, and the overwhelming (unreasonable) bear sentiment signals that the shakeout is upon us.
FA:
Highlights: "Lumen Technologies is the only company to win Frost & Sullivan's prestigious 2021 Global New Product Innovation Award".
Who are they?
- "Lumen brings together the talent, experience, infrastructure and capabilities of CenturyLink, Level 3 and 25+ other technology companies to create a new kind of company—one designed specifically to address the dynamic data and application needs of the 4th Industrial Revolution." - Company website.
- Already is the global leader for fiber network. Lumen has the largest ultra-low-loss fiber network in North America with 3.5 million miles of high-capacity.
- Owns the world’s most-connected CDN (Content Delivery Network).
What do they do?
- "Lumen is an enterprise technology platform that enables companies to capitalize on emerging applications and power the 4th Industrial Revolution". They are focused on the 5G/6G sector, which I speculate will see explosive growth soon.
- "We integrate network assets, cloud connectivity, security solutions and voice and collaboration tools into one platform that enables businesses to leverage their data and adopt next-generation technologies."
- Focused rebranding for edge computing solutions and 5G sector.
- Lumen has partnered with VMware to develop cybersecurity software: Distributed Denial of Service (DDoS) Mitigation, Web Application Firewall (WAF), Bot Risk Management (BRM).
- Black Lotus Labs is their threat research arm, the world’s most deeply peered networks and industry-leading endpoint protection and datacenter virtualization.
Key Products:
- Premises Edge: Tactile Internet, Virtual reality, Augmented reality.
- Metro Edge: Smart manufacturing, Video analytics, POS transactions, Retail robotics, IoT.
- Cloud Core: AI/ML platforms, Big data analytics, Disaster recovery, SaaS, Cloud storage, Hyperscale environments.
Clients:
- Salesforce, Zoom are big customers already.
Financial Performance:
- Growth & Trend shows they are almost profitable: Reported a Net Loss of $1.232 billion for the full year 2020, compared to a Net Loss of $5.269 billion for the full year 2019. Excluding Integration and Transformation Costs and Special Items, reported Net Income was $1.801 billion for the full year 2020 compared to $1.409 billion for the full year 2019. The trend is positive.
- Cash Flow Positive.
- Invested Capital and Total Assets are decreasing, yet total liabilities and debt decreasing, while CapEx is increasing.
- Reduced Net Debt by approximately $1.6 billion and reduced leverage to 3.6x Net-Debt-to-Adjusted EBITDA.
- For 2021, Lumen has debt obligations of $2.4 Bn still.
- However, Lumen had $34.1 Bn of debt in 2020.
- LUMN finished the year with $2.9 billion in free cash flow and a requirement of $1.1 billion to meet its dividend obligation.
- Insiders & Insider Trading: -0.92%
- Institutional Ownership: 79%
- About 659 funds hold LUMN, and interestingly enough, while the stock price dumped, Average 13F Ranking has been steadily increasing. This aligns with the Accumulation Distribution model that I presented.
- Float: 976.12M.
- Short % of Float: 7.51%.
- Valuation: 0.97 P/B ratio and 0.64 P/S ratio. Undervalued, by traditional valuations.
- Financial Reporting: Solid.
- Potential:
5G Market:
Market size value in 2020: USD 41.48 Billion
Revenue forecast in 2027: USD 664 Billion
"The global 5G Applications and Services Market is expected to grow at a compound annual growth rate (CAGR) of 25.8% from 2019 to 2027"
(According to 180+ page research report by Fidelity National Financial)
- Lumen Technologies should benefit from the growth of the 5G market, so we can expect 25.8% CAGR in revenue from their market share of 5G, and factor in growing market dominance.
TA:
- Accumulation/Distribution Phases are rather difficult to predict with Elliot Wave Theory, so Dow Theory will be used instead.
- Expecting 600%+ move up on breakout.
- MACD long term analysis:
- Short term outlook: Fib support level, with a big whale buy. Looks ready to move up.
- MACD short term bullish divergence:
- Stoch RSI indicating possibly one more shakeout:
- Historical analysis showing this is likely, if the same whale is in charge:
- However, Fib levels indicate that it cannot possibly go much lower!
QA:
- Interestingly, it would take 5.7 days for shorts to fully cover. It is likely the shorting was used to take the price down from the previous distribution level. Great short squeeze potential.
- Naked short selling report collected from FINRA shows that naked short volume was massive in the end of Jan. Most likely to suppress the price at the resistance point. Institutions were not positioned for the breakout yet.
- Options flow does not present high gamma squeeze potential, however, the low OI presents a very good long entry.
VERDICT:
- The company is reducing debt and leverage. This is smart, as there is sentiment that a market correction and stagflation is nearing.
- The critical point that investors will need to decide on is if the company can survive such conditions with their remaining debt. At this point, it looks like their debt will soon be eliminated, and they will be profitable.
- It is my speculation that in the case of a tech correction, and a rotation into value, tech will still thrive, but it is companies like these - non-speculative, but necessary, will be real winners. A lot of retail excess will be trimmed from unreasonably valued companies. At least some Institutional investors seem to share this sentiment, judging from their accumulation.
- This company checks many boxes for me, and looks ready for an explosive move up, so I assign it an S-tier rating.
STRATEGY:
- Accumulate.
- Entry levels: 7.50, 4.00.
- Trigger for Long: breakout of falling wedge resistance.
- Wave 3 PT: 80.00.
- Wave 5 PT: 130.00.
I think the Impulse wave 3 target of 80 aligns with the MACD signaling a 600% move-up to come. This is a high probability level.
This would put the company's valuation at 86B~, which is not unreasonable, and even still would be undervalued, in my opinion.
GL, and if you like the content, give a like, leave a comment, and follow!
P.S. Trying to take a more succinct presentation model for DD, based on constructive criticism I have been receiving.
