Australian Billionaire Kerr Neilson is Selling These 5 Stocks

3. Lumen Technologies, Inc. (NYSE:LUMN)

Number of Hedge Fund Holders: 42

Lumen Technologies, Inc. (NYSE:LUMN) is a Monroe, Louisiana-based provider of communication infrastructure with over 4.5 million broadband subscribers as of 2022.

On August 5, Philip Cusick at JPMorgan resumed coverage on Lumen Technologies, Inc. (NYSE:LUMN) with an Underweight rating and a target price of $10. The analyst believes the company is fundamentally challenged in the short and medium term following the divestiture of Latin America and incumbent local exchange carrier (ILEC) assets. These developments are expected to hamper the legacy voice and copper revenue of the company. The analyst also anticipates Lumen Technologies, Inc.’s (NYSE:LUMN) revenue and EBITDA to decline in 2023 as the complexity and size of the business will reduce.

Here’s what Longleaf Partners Fund said about Lumen Technologies, Inc. (NYSE:LUMN) in its Q4 2021 investor letter:

“Lumen (39%, 4.22%; 3%, 0.38%), the global fiber company, was the top absolute and relative contributor for the year. CEO Jeff Storey took two actions this year to substantially increase the business’s value and address the stock’s enormous discount (it trades below 35% of our appraisal value). First, during the third quarter, Lumen sold its Latin American fiber for a good price (9x EBITDA) and the weaker half of its US consumer business for an encouraging 5.5x EBITDA. Both multiples came in above our appraisals and demonstrate how cheap the consolidated Lumen RemainCo is today at less than 6x P/FCF and EV/EBITDA. The majority of Lumen’s remaining EBITDA comes from its US Enterprise and SMB segments, which grow faster than Lumen’s disposed LatAm fiber and are worth higher multiples. The weakest segment of the new Lumen, the western half of Consumer, is superior to the assets the company just sold for 5.5x EBITDA. Second, Storey quickly repurchased 7% of Lumen’s shares, adding meaningfully to value per share and free cash flow per share. When the dispositions close, proceeds will reduce debt meaningfully, putting net debt right at the company’s leverage ratio target even though that target was based on the prior, inferior business mix. We are pleased that our engagement since filing an amended 13D helped the company begin to deliver positive corporate actions. The market has fixated on the potential for another dividend cut, but Lumen’s FCF is more than sufficient to cover the $1/share payout while investing aggressively into high-return, edge-out capex to grow revenues.”