Quick Value 2.22.22 ($LUMN)
Lumen Technologies ($LUMN) - big selloff on weak 2022 guidance; may be a good time to take a look
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Some stats on retail sales…
Retail sales still growing — at a double digit YoY pace in January 2022 vs. January 2021
Consumers spending ~70% of wages/salaries — above multi-year highs
Housing related spending has ballooned more than most categories from ~$500bn pre-pandemic to a recent ~$675bn
Lumen Technologies ($LUMN)
Every value investor gets drawn into looking at this one every once in a while. Lumen is the former CenturyLink / Level 3 Communications which merged in 2017. Back then, they were targeting pro-forma EBITDA of ~$11bn and a $2.16/sh dividend — today, EBITDA is $8.4bn and the dividend has been cut to $1/sh.
Lumen offers voice and broadband services to business and residential customers. Mostly businesses at 72% of 4Q21 sales. It’s pretty widely known that the copper wire portion of the voice/internet business is in decline. Growth portions of the business have not (yet?) lifted the whole boat here.
Here are some quick bullets on this one:
The stock took a dive from $12-13/sh down below $10 after reporting weak 2022 guidance — this was how it made it back on my to-do pile
Leverage is expected to remain unchanged at ~3.6x debt/EBITDA following the asset sales
2022 guidance includes half-year portion of the planned divestitures — ~$0.85bn EBITDA
With management turning up the capex spend to try and turn around the growth picture, analysts are questioning whether the $1/sh dividend can be adequately covered at $1bn per year — 2022 guidance implies just north of $1bn in FCF following the asset sales mid-year
On the capital allocation front — management continues to reiterate the dividend as a top priority (at $1bn per year) with the next objective as bringing debt down to 2.75-3.25x leverage (which may be a few years away still)
With ~1bn shares outstanding, LUMN is a $10bn market cap around $10/sh — with the pending asset sales, net debt could be close to $18bn for an enterprise value of $28bn or so
2022 EBITDA excluding the sold businesses looks more like $5.6-5.7bn which puts the stock at <5x EV/EBITDA
The dividend yield at 10%+ may indicate a dividend cut is on the way but that yield is actually right in-line with the 5yr average