We scour the net for great ideas, so you don't have to
Claim this username to collect earnings from this post, and the portfolio!
LUMN is currently trading very close to book value at between $11-12 per share as of time of writing, with earnings per share averaging about $0.40-0.50 per quarter, excluding Q4 where they took a $2 Billion Goodwill impairment. They currently pay a $0.25/share quarterly dividend, for a yield of about 8.5%. The next EX-div is on August 30.
Recently LUMN announced 2 sales consisting of legacy/low-growth assets that make up approximately 20% of their $8.4-8.6B annual EBIDTA. They are giving up $1.7 Billion in EBIDTA for approximately $10.2 Billion in cash. However, if you count the $1.4 Debt that the buyer is taking on, it's effectively $11.6 Billion.
In theory, LUMN could take this $10.2 Billion in proceeds and pay out about $9 per share, covering 75% of the value of the shares, while still remaining profitable with their remaining 80% of EBIDTA and covering their $0.25/quarter dividend.
However, Storey believes the most effective use of this capital is to invest in high-growth Fiber assets, which should grow future earnings, as well as a $1 Billion buyback program over the next 2 years in which the company will be buying shares at a discount to intrinsic value.
Currently the biggest risk LUMN faces has been their approximately $30 Billion in debt and slowly declining revenue, which is the reason the shares are trading at such a low valuation. However, they have been making a lot of progress in both paying down debt and financing it at lower rates the past couple years. In addition, the asset sale consists of their legacy assets, and they intend to focus on growth after the sale.
LUMN is currently very heavily shorted, with about 10.7 days of trading to cover. https://www.marketbeat.com/stocks/NYSE/LUMN/short-interest/
Last time LUMN saw this level of short interest back in January, where the price temporarily shot up to about $16 during a short squeeze.
For comparison, AMC has just 0.5 days to cover.
LUMN could be due for a short squeeze if the right conditions align.
In addition to the upside, the buyback program should provide some regular price support as the Company seeks good opportunities to buy back shares at a discount.
Positions: 1340 Shares of LUMN