Lumen Technologies stock upgraded by Goldman Sachs due to promising new projects By Investing.com

On Wednesday, Goldman Sachs adjusted its stance on Lumen Technologies (NYSE:LUMN), upgrading the stock from Sell to Neutral and significantly increasing the price target to $4.00 from the previous $1.00.

The revision follows Lumen’s recent announcements of new business ventures, including contracts for building and operating long-haul fiber connections between data centers and other enterprise facilities.

The firm highlighted that one of Lumen’s new customers is Microsoft, which marks a meaningful growth opportunity, despite its relatively small projected revenue contribution of approximately 2% to the company’s overall operations.

Goldman Sachs acknowledged the ongoing risks associated with the decline in Lumen’s legacy revenue streams and the potential headwinds to EBITDA growth.

Nevertheless, the analyst believes that the latest business developments offer Lumen a long-dated and accretive cash flow stream with a positive Net Present Value (NPV). This could justify a higher equity multiple than previously estimated.

The firm’s updated outlook suggests a belief that the company’s management is taking appropriate steps to stabilize and grow the business in the face of near-term challenges.

In other recent news, Lumen Technologies has reported an increase in its annual free cash flow forecast, attributing this growth to heightened demand for its services spurred by artificial intelligence (AI) adoption.

The firm now anticipates its free cash flow to reach between $1 billion and $1.2 billion. Furthermore, Lumen has recently secured $5 billion in new business and is in talks to potentially add another $7 billion in sales opportunities.

In response to rising demand, Lumen plans to more than double its intercity network miles within five years. The company has also formed a new Custom Networks division to provide tailored network solutions.

Lumen has entered into a strategic partnership with Microsoft Corp (NASDAQ:). to enhance Microsoft’s cloud infrastructure, responding to increased demand for datacenter network capacity driven by AI advancements.

However, Goldman Sachs initiated coverage on Lumen shares with a sell rating, citing potential difficulties due to weak demand in the enterprise wireline market.

Despite Lumen’s attempts to restructure its debt and stabilize earnings, Goldman Sachs expressed skepticism about the company’s ability to improve stock performance without more significant progress in revenue stabilization.

These are among the recent developments in Lumen Technologies’ strategic moves to stimulate growth and navigate through financial challenges.

InvestingPro Insights

In light of Goldman Sachs’ revised outlook on Lumen Technologies, current InvestingPro data presents a mixed financial picture that investors may find useful. Lumen’s market cap stands at approximately $5.08 billion, indicating its significant presence in the market. Despite this, the company’s P/E ratio is negative, reflecting earnings challenges, with the latest data showing a ratio of -1.79. This ties into one of the InvestingPro Tips, which notes that analysts are not expecting Lumen to be profitable this year. Moreover, the company’s revenue has seen a decline of 14.7% over the last twelve months as of Q1 2024, which aligns with Goldman Sachs’ concerns about the decline in legacy revenue streams.

However, investors should also note the company’s high price volatility, as indicated by another InvestingPro Tip. This could be a point of interest for those looking for short-term trading opportunities, especially considering the significant returns Lumen has delivered over various periods, including a 187.36% return over the last year. The company’s stock is trading at a high Price / Book multiple of 10.07, which suggests that it might be valued more for its assets than for its earnings potential at the moment.

For those interested in a deeper analysis, there are additional InvestingPro Tips available, which offer insights such as the company’s debt burden and the recent revisions by analysts on earnings expectations. These tips and more detailed metrics can be accessed through InvestingPro’s platform, providing a comprehensive toolset for evaluating Lumen’s stock performance and potential investment value.

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