Lumen Technologies Stages a Comeback: Here’s Why It’s Surging Again
After months in the trenches, Lumen Technologies is clawing back—hard. The telecom-turned-tech play just pulled off its sharpest rally in months, leaving Wall Street scrambling to adjust price targets. Here's what lit the fuse.
Short squeeze or sustainable momentum?
No meme-stock frenzy here. Lumen's rebound stems from cold, hard fundamentals: a cleaner balance sheet, strategic fiber-optic asset sales, and—let’s be honest—desperately oversold conditions. Even bankruptcy chatter couldn’t keep this dog down forever.
The institutional flip
Hedge funds that bet against Lumen’s collapse are now covering positions. Meanwhile, retail traders—always late to the party—are piling in like it’s 2021. Classic case of ‘buy when there’s blood in the streets,’ assuming you ignore the bloodstains on the financials.
Will it last? Probably until the next earnings call. But for now, Lumen’s proving even telecom dinosaurs can roar—if you dangle enough speculative tendies in front of traders.
Lumen's new products gaining traction as inflation cooperates
First, as a heavily indebted company, Lumen's stock can be sensitive to inflation and interest rate news. On that front, Tuesday's Consumer Price Index (CPI) report came in tamer than expected. Overall the July CPI ROSE 2.7% year over year and 0.2% month over month, which was slightly better than economists had predicted. In the wake of the release, economists ramped up their bets for an interest rate cut at the next Federal Reserve meeting in September.
Even after a bunch of refinancings and asset sales, Lumen's debt stands at $13.5 billion, or 3.9 times its projected earnings before interest, taxes, depreciation, and amortization (EBITDA). That's still a high leverage ratio, so the movement of interest rates is still very important to Lumen.
Turning to company-specific news, on Wednesday Lumen put out a press release touting its network-as-a-service (NaaS) offering, announcing the product had surpassed 1,000 customers.
Before, Lumen and peers would sell network capacity in fixed amounts; however, the new NaaS service functions on a usage basis, kind of like cloud computing services. That's likely a lot more appealing to customers, who now only pay for what they need. The more flexible service spans internet, Ethernet, and VIRTUAL private networks on demand, linking on-campus data centers to cloud hyperscalers and the edge.
Lumen first rolled the new product out toward the end of 2023, about a year after new CEO Kate Johnson took the helm.
Image source: Getty Images.
Lumen is a low-priced turnaround
Lumen's stock looks incredibly cheap, with a market cap of just $4.52 billion, or just 1.4 times this year's projected EBITDA. However, its huge debt load and continued revenue declines make the stock quite risky.
The stock is only appropriate for investors who may be familiar with its products and services, and therefore may be able to see a path to a turnaround in its end results. If the company can eventually grow newer products faster than legacy products are declining, there could be significant upside. However, as last quarter's results showed, that scenario still remains a ways off.
