Longleaf Partners: “Lumen (LUMN) Can Grow by Continuing to Invest into Fiber”

Longleaf Partners Global Fund, an independent investment management firm, published its fourth quarter 2020  investor letter – a copy of which can be downloaded here. A return of 17.46% was recorded by the fund in the fourth quarter of 2020, outperforming its MSCI World benchmark that delivered a 13.96% return in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

Longleaf Partners Global Fund, in their Q4 2020 investor letter, mentioned Lumen Technologies, Inc. (NYSE: LUMN) and emphasized their views on the company. Lumen Technologies, Inc. is a Monroe, Louisiana-based telecommunications company that currently has a $14.4 billion market capitalization. Since the beginning of the year, LUMN delivered a 34.97% return, extending its 12-month gains to 45.25%. As of March 26, 2021, the stock closed at $13.16 per share.

Here is what Longleaf Partners Global Fund has to say about Lumen Technologies, Inc. in their Q4 2020 investor letter:

“Lumen (-19%, -2.40%; -1%, -0.08%), the fiber telecom company formerly named CenturyLink, was another top detractor for the year and the only (slight) detractor in the fourth quarter. During the last quarter, Enterprise fiber revenues grew 0.8% year-over-year, International and Global declined 2.6% and Small and Medium Business (SMB) shrunk 5.8% due to COVID repercussions. Yet margins slightly increased due to the strong cost controls of CEO Jeff Storey and CFO Neel Dev. Despite significant deleveraging over the last two years and multiple debt issuances this year at low to mid-single digit interest rates, the stock trades at an incredibly low multiple of <5x FCF. We believe Lumen can grow by continuing to invest into fiber, which should outweigh its declining legacy copper landline business. Numerous recent large transactions for fiber peers at double-digit EBITDA multiples and landline peers at mid-single digit EBITDA multiples also suggest that Lumen could monetize several of its segments at good prices well beyond its total market capitalization today. We have stepped up our engagement with the company and signed a non-disclosure agreement (NDA) last month, so unfortunately we cannot say more other than “stay tuned.””

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Our calculations show that Lumen Technologies, Inc. (NYSE: LUMN) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Lumen Technologies, Inc. was in 29 hedge fund portfolios, compared to 31 funds in the third quarter. LUMN delivered a 33.47% return in the past 3 months.