- Lumen Technologies (LUMN) has reported a mixed Q1 2022 earnings report.
- The company gave upbeat guidance for the 2022 outlook, which is positive.
- There is a revenue growth problem and a high level of debt that weigh on it negatively.
Lumen (NYSE:LUMN), a technology and communications company that helps companies experience the benefits and power of solutions like adaptive networking, connected security, edge computing and hybrid cloud, reported its Q1 2022 earnings report on May 4, and the results showed the continuation of a worrisome trend. With this in mind, I consider LUMN stock as a hold for now.
Lumen Technologies has been in a transition phase since 2021 when it turned profitable after three consecutive years of net losses. The shares of this technology company have proved to be somewhat resilient year-to-date, having losses of 15%.
Mixed Q1 2022 Earnings Give Reason for Skepticism
Lumen reported EPS GAAP of 63 cents, which beat expectations by 18 cents. However, it reported revenue of $4.68 billion, which missed estimates by $5.54 million.
On the positive side, net income of $599 million for the first quarter of 2022 was 21% higher year-over-year, and free cash flow excluding cash special items was strong coming in at $846 million compared to $850 million in the first quarter 2021.
On the negative side, all business sales channels showed weak and negative revenue growth. International and Global Accounts revenue fell by 2% year-over-year and Large Enterprise fell by 7% — the largest decline for all sales channels.
Can Upbeat 2022 Guidance Power LUMN Stock Higher?
Lumens Technologies provided upbeat guidance for 2022, which should be supportive for LUMN stock moving forward. The Adjusted EBITDA forecast range increased between $6.9 billion to $7.1 billion from a previous range o $6.5 billion to $6.7 billion. Furthermore, the free cash flow outlook increased to a range of $2.0 billion to $2.2 billion from a previous range of $1.6 billion to $1.8 billion.
The bad news is that the firm kept the dividend stable at $1 per share. Why is it bad news? High inflation diminishes the value of money earned today. Companies that increase their dividends over time are considered more attractive than ones that keep their dividends stable. That’s especially true in a high inflation environment like that which we’re in today.
Bottom Line on LUMN Stock
Lumen Technologies has a trend that you should focus on first and foremost: Weak revenue growth. If you dive into the details, 2018 was the last year that positive sales growth of 32.78% was reported.
In 2019, 2020 and 2021 the revenue growth declined 8.47%, 3.48% and 4.95%, respectively. For Q1 2022 total revenue was $4.67 billion, or a decline of 7% compared to total revenue of $5.02 billion in Q1 2021. For Mass Markets segment revenue, only Fiber Broadband showed an increase in revenue. Other Broadband and Voice and Other reported negative revenue growth.
Apart from weak revenue growth, Lumen Technologies also has a high level of debt. Specifically, its D/E ratio of 2.31x for the latest quarter is high and can harm future profitability.
Lumen Technologies stock could be a clear buy, but when you factor in the problem with revenue and its high debt level, it becomes a “hold.” That’s further supported by the fact that while its dividend yield is high — above 8% — it has an unstable track record.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.