Lumen Technologies Inc. shares have been falling sharply in Thursday buying and selling after the telecommunications firm introduced it was eliminating its dividend and promoting one other enterprise, strikes which have prompted powerful questions on the way forward for the enterprise.
The dividend announcement got here along with Lumen’s
LUMN,
-16.38%
third-quarter earnings report, which additionally confirmed misses on revenue and income. Additionally, the corporate introduced late Wednesday that it has agreed to promote its enterprise in Europe, the Middle East, and Africa for $1.8 billion.
Shares have been down 15% in Thursday afternoon buying and selling.
While the choice to remove the dividend got here barely sooner than Citi Research analyst Michael Rollins anticipated, it wasn’t a shock.
“Lumen remains at the beginning of a multi-year transition to improve mass markets revenue with investment and improve business segment performance, while absorbing ongoing legacy headwinds,” he wrote. “We believe both the monetization and dividend cut to zero are the right moves to improve its financial flexibility to prioritize future operating investments and manage net debt leverage.”
Rollins continues to price the shares at impartial.
Cowen & Co.’s Gregory Williams agreed that the dividend lower was “long-awaited,” and he noticed alternative forward for the corporate.
Lumen “can turbocharge its growth initiatives” resembling automation and fiber-to-the-home, “with a sharper focus while removing a major stock overhang.”
He nonetheless anticipated uneven buying and selling.
“As for the stock, expect volatility with a technical wash-out, though admittedly not many yield-oriented investors remaining, and an additional sell-off on the still-challenged fundamentals…counteracted by large short interest covering, and an eventual potential return for value investors, all bolstered with a buyback,” Williams wrote.
He maintained his market-perform ranking on the inventory whereas chopping his value goal to $8 from $12, writing that “lackluster” third-quarter leads to areas like enterprise and fiber builds hold him sidelined.
But in gentle of the dividend elimination and sale of the EMEA enterprise, MoffettNathanson analyst Nick Del Deo nonetheless wasn’t satisfied that the corporate’s efforts will repay.
“We don’t believe the EMEA deal changes Lumen’s outlook in a material way but do believe eliminating the dividend was the right thing to do,” he wrote in a notice to shoppers as he maintained an underperform ranking.
“We won’t know the answer for some time, but the fundamental question we need to ask is: can a streamlined Lumen with a ‘growth-oriented’ management team drive an inflection in the growth rate of the business?” Del Deo requested. “Or will this ultimately prove to be a case where the structural position of the remaining business – significant legacy revenue streams, intense competition, commoditization and cannibalization dynamics, a shrinking industry, and too much financial leverage — is simply too much to overcome?”
In his view, “even talented managers are likely to have trouble turning the ship.”