Analyst Note| Matthew Dolgin, CFA |
Lumen’s revenue was weak, and its adjusted EBITDA margin was mildly disappointing during the first quarter. However, the firm’s fate rides on its prospects following big divestitures it plans to complete this year, and Lumen revealed several metrics that give comfort that its revenue and subscriber outlook will significantly improve in 2023 and beyond. Lumen now expects the sale of its incumbent local exchange carrier, or ILEC, business to occur in the fourth quarter rather than third and materially raised its full-year free cash flow and EBITDA guidance to account for the delay. While increased transparency is welcome, it doesn’t alter our view, and we are maintaining our $16 fair value estimate. We believe the stock is materially undervalued but think investors will have to be patient to see the business turn up.