A month has gone by since the last earnings report for Lumen (LUMN). Shares have lost about 27.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Lumen due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Lumen Q3 Loss Narrower-Than-Expected
Lumen reported an adjusted loss (excluding special items) of 13 cents per share for the third quarter of 2024, which was narrower than the Zacks Consensus Estimate of a loss of 20 cents. The company reported a loss per share of 9 cents in the prior-year quarter.
Quarterly total revenues were $3.221 billion, down 11.5% year over year. The decline was due to the negative impact of divestitures, commercial agreements and the sale of the CDN business. However, the metric beat the Zacks Consensus Estimate by 0.6%.
Driven by significant AI-fueled connectivity demand, Lumen secured an additional $3 billion in incremental Private Connectivity Fabric (“PCF”) deals, bringing the total to $8 billion in new PCF sales since June 2024.
It raised its free cash flow guidance for 2024, driven by higher cash flows associated with PCF sales growth. For 2024, free cash flow is now anticipated to be between $1.2 billion and $1.4 billion. Earlier, the company expected free cash flow in the range of $1-$1.2 billion.
Segment Performance
Lumen has adopted a new reporting structure that has collaborated with International and Global Accounts and large enterprises in the large enterprise channel. The company has moved the public sector to its separate channel.
By segment, Business revenues fell 13% to $2.536 billion while revenues from Large Enterprises plunged 8% to $839 million. Mid-Market Enterprise revenues declined 7% to $471 million. Public Sector revenues were down 4% to $427 million. Lumen expects the public sector revenues to grow this year driven by increasing momentum in large bookings. Revenues of North America’s Enterprise Channels were down 7% to $1.737 billion. The metric for Wholesale decreased 9% to $706 million.
Revenues from Mass Markets were down 7% year over year to $685 million.
Lumen anticipates witnessing healthy momentum in the Quantum business in the upcoming quarters. The company added 43,000 Quantum fiber subscribers, taking the count to 1 million in the reported quarter.
In the third quarter, Lumen added 131,000 Fiber broadband-enabled locations. As of Sept. 30, 2024, the total enabled locations in the retained states were 4 million. The company is targeting to achieve 500,000 enabled locations in 2024.
Margin Performance
Total operating expenses decreased 9% year over year to $3,095 million.
Operating income was $126 million compared with $223 million in the year-ago quarter. Adjusted EBITDA (excluding special items) slipped to $899 million from $1.049 billion for respective margins of 27.9% and 28.8%.
Cash Flow & Liquidity
In the third quarter, Lumen generated $2.032 billion of net cash from operations compared with $881 million used in the prior-year quarter.
Free cash flow (excluding cash special items) for the third quarter was $1.198 billion compared with $43 million in the prior-year quarter.
As of Sept. 30, 2024, the company had $2.64 billion in cash and cash equivalents with $18.142 billion of long-term debt compared with the respective figures of $1.495 billion and $18.411 billion as of June 30, 2024.
2024 Outlook
For 2024, Lumen continues to expect adjusted EBITDA in the band of $3.9-$4 billion and capital expenditures to be between $3.1 billion and $3.3 billion. Lumen added that given the overall business trends and initial cost impacts from the incremental PCF sales, it expects 2024 EBITDA at the low end of the guided range.
The company continues to expect 2025 EBITDA to be below the levels of 2024, owing to the investments in transformation and costs along with higher startup costs for PCF sales and legacy revenue declines. It expects EBITDA to significantly rebound in 2026 and register growth thereafter.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
The consensus estimate has shifted 63.64% due to these changes.
VGM Scores
Currently, Lumen has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Lumen has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Lumen belongs to the Zacks Technology Services industry. Another stock from the same industry, Aptiv PLC (APTV), has gained 4.8% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.
Aptiv reported revenues of $4.85 billion in the last reported quarter, representing a year-over-year change of -5.1%. EPS of $1.83 for the same period compares with $1.30 a year ago.
For the current quarter, Aptiv is expected to post earnings of $1.62 per share, indicating a change of +15.7% from the year-ago quarter. The Zacks Consensus Estimate has changed -4.2% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Aptiv. Also, the stock has a VGM Score of A.
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