LUMN- Once again a huge bargain for value investors

Lumen Technologies(LUMN) is a telecommunications company formerly known as CenturyLink.

Following Q4 2021 earnings, Lumen's stock dropped from $12.82 to a 52 week low of $10.10, and is now trading at a 5.35 P/E ratio and 9.80% dividend yield.

The primary reasons for the drop in price following earnings were likely:

  • A decline in revenues YoY in some of their legacy businesses, which were offset by reductions in expenses.

  • Next year guidance indicating lower free cash flow in 2022 due to increased investments being made in deploying Fiber internet to homes.

  • In general, their leverage levels are a considerable risk long term

While these things are concerning, there isn't really much that has changed to the underlying fundamentals of the company.

Their upcoming sale of Apollo for $7.5 Billion and their Latin American business for $2.7 Billion should help them fund the overall expansion. From what I can tell, The projected sale price of these assets exceeds the current market capitalization of the company after accounting for the debt being transferred with the sale.

That means hypothetically, if Lumen paid out the cash proceeds from the sale of those assets as a dividend, you would already break even from that alone. But they won't be doing that. Based on their earnings release, they intend to continue the $0.25/share quarterly dividend, invest in growing out fiber, and I assume work on de-leveraging.

Lumen is trading well below its intrinsic value. LUMN isn't a stock that will rocket any time soon as its business is stagnant, which makes it overseen in a market that is focused almost entirely on growth. But at current valuations, it can produce a very substantial return just from the cash flow it produces.

I've had a lot of success buying LUMN whenever it is below $10-11, selling at $13-14, and holding for the $0.25/share/quarter dividend when the price is between that. Alternatively, if you don't want to watch the market time sells, you can sell covered calls at $14 and bring in additional income.

Disclaimer: I hold over 1000 shares of LUMN with a cost basis averaging around $10.30-ish


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