Longleaf Partners Fund, a Memphis-based fund under Southeastern Asset Management, published its “Longleaf Partners Global Fund” fourth quarter 2021 investor letter – a copy of which can be downloaded here. Longleaf Partners Global Fund added 3.00% in the fourth quarter versus MSCI World’s return of 7.77%. For the full year, the Fund added 8.20%, while the MSCI World returned 21.82%. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Longleaf Partners Global Fund, in its Q4 2021 investor letter, mentioned Lumen Technologies, Inc. (NYSE: LUMN) and discussed its stance on the firm. Lumen Technologies, Inc. is a Monroe, Louisiana-based telecommunications company with a $10.6 billion market capitalization. LUMN delivered a -17.45% return since the beginning of the year, while its 12-month returns are down by -17.19%. The stock closed at $10.36 per share on February 28, 2022.
Here is what Longleaf Partners Global Fund has to say about Lumen Technologies, Inc. in its Q4 2021 investor letter:
“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.”
Photo by Mika Baumeister on Unsplash
Our calculations show that Lumen Technologies, Inc. (NYSE: LUMN) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. LUMN was in 39 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 25 funds in the previous quarter. Lumen Technologies, Inc. (NYSE: LUMN) delivered a -20.00% return in the past 3 months.
In February 2022, we also shared another hedge fund’s views on LUMN in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
