LUMN Stock: Why Lumen Stock is a Good Name for Investors to Buy
- Light (LUMN) Inventory has a very low valuation and a high dividend yield
- It is profitable and can afford to continue paying its current dividend
- The company has decent growth opportunities.
Lumen (NYSE:LUMN) trades at a very low valuation and has an extremely high dividend yield, as well as an adequate balance sheet. Additionally, the company appears to have strong, current operations and decent growth opportunities. Because of these points, I recommend investors to buy LUMN shares.
Lumen provides fiber optic infrastructure and “edge IT infrastructure” to small, medium and large businesses.
Low valuation and high dividend yield
LUMN stock is trading for just eight times analysts’ average estimate of 2022 earnings per share for the company and 10 times their average 2023 earnings per share (EPS) estimate. Meanwhile, the forward dividend yield of the share is 8.7%.
Above all, Lumen should have no great difficulty paying its $1 per year dividend. According to In search of Alpha, journalist Valkyrie trading company, Lumen’s free cash flow is expected to be between $1.6 billion and $1.8 billion, while the $1 per share dividend costs around $1 billion. You don’t have to be an Excel pro or a math whiz to figure this out. Based on these figures, Lumen should not have to cut its dividend in the future.
Finally, on the company’s balance sheet, its current ratio of 1.57 indicates that it will have no trouble paying its debts anytime soon. And while its $30.5 billion in debt is high, it’s less than four times its 2021 EBITDA, which isn’t considered high. Additionally, a relatively small debt of $3.6 billion will need to be paid by the end of 2025.
Solid businesses and growth opportunities
Largely due to the continued erosion of demand for fixed voice services, enterprise and mass market revenues, i.e. consumer and small business revenues, fell 4 .8% and 7.3% year over year in the last quarter. However, these main lines fell only 0.5% and 1.9% from the third quarter, and Lumen agreed to sell “more than a third” of its exposure to the “fixed market voice of mass” to Apollo. The company’s EBITDA excluding certain items was $2.1 billion, compared to $2.19 in the same period a year earlier, and its free cash flow was $776 million, compared to $943 million, excluding certain items.
And for 2022, Lumen expects free cash flow of $1.6 billion to $1.8 billion, as well as EBITDA, excluding certain items, of $6.5 billion to $6.7 billion.
Going forward, the proliferation of 5G may drive demand for the company’s products, and this phenomenon may already be taking hold, as in the U.S. Southeast and Midwest, demand of fiber is twice that of copper cabling. Additionally, Lumen has developed “ultra-low latency services” using its corner cloud network. Many businesses require low latency, which refers to the “time that elapses between a user request and the completion of that request”.
As Cisco (NASDAQ:CSCO) explained, “Many applications that require low latency need it to improve user experience and support customer satisfaction by helping applications run faster and smoother. These applications can include those hosted in the cloud , online meeting applications or mission-critical computing applications.
Lumen’s Quantum Fiber, which offers “fiber-based broadband to small business and residential customers,” is growing at 20% annually. Valkyrie Trading believes that this business, which Lumen is working diligently on, can be very profitable for the company. With Quantum Fiber, Lumen is adopting a new strategy to target many areas in urban and suburban environments where it can still profitably offer Quantum Fiber, instead of seeking to penetrate only the most profitable locations as it has done in the past.
The company will also utilize more local sales teams to drive Quantum Fiber’s penetration.
The shares trade at a very low valuation and offer an extremely high dividend yield, while Lumen can afford to continue paying its dividend and remain profitable.
Many companies need its cutting-edge, low-latency computing infrastructure, and demand for its quantum fiber appears to be strong.
As of the date of publication, Larry Ramer had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.