What Does Lumen’s Newly Added Risk Factor Tell Investors?

Lumen Technologies (LUMN) is an American telecom company, with it recently striking deals to sell some of its assets to focus on core operations. Let’s take a look at Lumen’s latest financial performance and risk factors.

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Financial Results and 2021 Outlook

The company reported its second-quarter financial results and issued updated full year 2021 guidance on August 3. Revenue came in at $4.92 billion, down from $5.19 billion a year ago. Additionally, EPS stood at $0.48, compared to $0.39 a year ago.

Notably, Lumen ended Q2 with $935 million in cash. It paid out $568 million as dividends in the six months ended June 30. It should be noted that the board has approved a 2-year share repurchase program of up to $1 billion.

For full year 2021, Lumen now expects to generate between $3.1 billion-$3.3 billion in free cash flow, up from the previous guidance of $2.8 billion-$3 billion. Additionally, the company expects to pay out $1.1 billion as dividends.

This July, Lumen announced a deal to sell its Latin American business for $2.7 billion. Recently, the company also revealed another deal to sell some of its assets across 20 states for $7.5 billion. (See Lumen stock charts on TipRanks)

Lumen’s Risk Factors

According to the new TipRanks Risk Factors tool, Lumen now carries 40 risk factors, compared to 39 previously.

Since June 2021, the company has added one new risk factor under the Finance and Corporate category. The newly added risk relates to Lumen’s agreements to sell assets. First and foremost, the company cautions that it may not complete the deals because their closings depend on securing several regulatory approvals and meeting certain conditions. Secondly, it states that the pending deals could impact its relationship with customers and divert management’s attention.

Furthermore, Lumen highlights that the divestitures may unlock fewer benefits than anticipated, and warns about the reduction in future cash flow due to the divestitures.

Analysts’ Take

Following Lumen’s Q2 earnings release, Citigroup analyst Michael Rollins initiated coverage of Lumen stock with a Sell rating and a price target of $10. Rollins’ price target suggests 14.89% downside potential.

Overall, the consensus rating is a Moderate Sell based on 1 Buy, 3 Holds, and 3 Sells. The average Lumen price target of $12 implies 2.13% upside potential to current levels.