4. Lumen Technologies, Inc. (NYSE:LUMN)
Number of Hedge Fund Holders: 30
Dividend Yield: 9.3% as of 9th July
Lumen Technologies, Inc. (NYSE:LUMN) is a communication services company. It provides various integrated products and services under the Lumen, Quantum Fiber, and CenturyLink brands. The company is among the communications stocks that have been gaining so far this year, making it one of the better dividend stocks with over 7% yield.
This May, while major communications stocks like Snap suffered, others like Lumen Technologies, Inc. (NYSE:LUMN) gained investor attention by rising 13%. The company itself was the best large-cap performer in the communications sector that month.
Our hedge fund data from the first quarter of 2022 shows 30 hedge funds long Lumen Technologies, Inc. (NYSE:LUMN) in the first quarter of 2022. Their total stake value was $904 million.
Longleaf Partners Fund, a Memphis-based fund under Southeastern Asset Management, mentioned Lumen Technologies, Inc. (NYSE:LUMN) in its fourth quarter of 2021 investor letter. Here’s what they said:
“In a year that saw various times when the stock market acted like the pre-COVID, during-COVID and post-COVID “environments” (not necessarily in that order), the good news was that our two largest holdings – which we feel can thrive in all three of these environments – Lumen and EXOR, were among our top contributors for the year. We believe that both remain underappreciated by the market and offer significant upside from today’s discounted prices.
Lumen (40%, 3.06%; 3%, 0.31%), the global fiber company, was the top contributor for the year. CEO Jeff Storey took two actions this year to substantially increase the business’s value and address the stock’s enormous discount (it trades below 35% of our appraisal value). First, during the third quarter, Lumen sold its Latin American fiber for a good price [9x earnings before interest, taxes and depreciation (EBITDA)] and the weaker half of its US consumer business for an encouraging 5.5x EBITDA. Both multiples came in above our appraisals and demonstrate how cheap the consolidated Lumen RemainCo is today at less than 6x P/FCF and EV/EBITDA. The majority of Lumen’s remaining EBITDA comes from its US Enterprise and Small and Medium Business (SMB) segments, which grow faster than Lumen’s disposed LatAm fiber and are worth higher multiples. The weakest segment of the new Lumen, the western half of Consumer, is superior to the assets the company just sold for 5.5x EBITDA. Second, Storey quickly repurchased 7% of Lumen’s shares, adding meaningfully to value per share and free cash flow per share. When the dispositions close, proceeds will reduce debt meaningfully, putting net debt right at the company’s leverage ratio target even though that target was based on the prior, inferior business mix. We are pleased that our engagement since filing an amended 13D helped the company begin to deliver positive corporate actions. The market has fixated on the potential for another dividend cut, but Lumen’s FCF is more than sufficient to cover the $1/share payout while investing aggressively into high-return, edge-out capex to grow revenues.”
