JPMorgan Comments Negative on Lumen (LUMN): 'revenue continues to decline, leverage stays high'
JPMorgan analyst Philip Cusick reiterated an Underweight rating and {REMOVEPT} price target on Lumen (NYSE: LUMN)
The analyst comments "Lumen reported solid 4Q results and 2024 guide, with generally in line EBITDA. The company remains focused on stabilizing revenue and EBITDA by 2025, and we saw signs of improvement in 4Q23. Lumen reported new business logos up 13% q/q, share gains in IP and SASE within the Mid-Market sales channel, and Public Sector up 12% q/q to $495m or ~20% ahead of estimates, but largely due to low margin other revenue. Total Business Wireline revenue was down ~3.5% y/y in 4Q23 vs peers down ~8-10% y/y. While 4Q23 results were encouraging, we think investors are looking for a sustained trend of organic revenue and EBITDA growth. Lumen expects the rate of decline for Total Enterprise revenue to improve notably in the 2H24 and expressed confidence in Public Sector being the first segment to return to sustainable growth, followed by Mid-Market and then Large Enterprise. Lumen expects its pending Transaction Support Agreement (TSA) to consummate in 1Q24, which should alleviate customer concerns regarding the company’s funding situation and ability to invest in the business. The TSA carries higher interest rates that will increase 2024 cash interest expense by $125-225m y/y. We expect TSA negotiation and execution charges to hit in 1Q24 and look for a cleaner story moving forward with EMEA ($1.8b) and CDN assets fully divested. Management has made significant progress in turning the business around, but fundamentals remain under pressure in the Enterprise business and continued deterioration in its legacy Consumer segment with less support from a less aggressive fiber build. We remain Underweight on shares as revenue continues to decline, leverage stays high, and the company attempts to execute a capital-intensive strategy with results still to be fully realized."
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Shares of Lumen closed at $1.35 yesterday.