Sector Star | Is $LUMN Nearing a Turning Point Despite the Q3 Pullback?
US stocks bounced back last Friday, with Wall Street notching weekly and monthly wins as investors embraced strong earnings from $Amazon.com(AMZN)$ that eased some doubts about prospects for Big Tech.
The best-performing concepts is Alternative Carriers. Considering the different perceptions of the stock, this time TigerPicks chose $Lumen Technologies(LUMN)$ to have a fundamental highlight to help users understand it better.
In the past five days, LUMN's share price has risen by 27.07%.
$Lumen Technologies(LUMN)$
Lumen Technologies, Inc. is a networking company, which connects people, data, and applications quickly and securely. The Company is engaged in providing an array of integrated products and services to its domestic and global business customers and its domestic mass market customers. It operates through two segments: Business segment and Mass Markets segment.
LUMN stock fell even though the company beat Q3 expectations. They reported non-GAAP EPS of -$0.20, which was a $0.07 beat, and revenue of $3.09 billion, about $50 million above estimates. The stock slide was driven by a widening net loss of roughly $621 million, or about -$0.62 per share.
If we compare these figures to the $148 million loss a year earlier, and a rise in operating expenses by 3% with revenue declining 4% year over year, we can see why the market pulled back. What also didn't help was the announcement of a contract extension with $Palantir Technologies Inc.(PLTR)$ the week prior. It pushed up the stock momentum leading into earnings by a lot.
Now, even with the pullback, I am still up about 28% since my previous buy call. There is still a lot of expectation backed into the stock going into 4Q25. Now with the stock in the low $10 range, I do not think it is too late to enter Lumen at its current levels. I like their connected ecosystem approach, in which they aim to make Lumen systems almost an essential element when it comes to connectivity. This kind of strategy has to be fueled by more partnerships from other hyperscalers moving forward, which I think we will see.
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Q3 2025 In Numbers
3Q25 revenue came in at $3.09 billion, which marked a 4.2% decline year over year from the $3.29 billion we saw in 3Q24. This continued the company’s multi-year revenue contraction. This kind of slowdown is mainly due to some secular declines in legacy voice and traditional enterprise networking services. It was, however, offset slightly by growth in some of their newer connectivity and edge offerings. T
he Business segment, which still remains Lumen’s largest revenue contributor, fell roughly 3.2% to $2.45 billion, while the Mass Markets segment, primarily residential broadband, also declined by about 7.7% to $631 million. It seems there has been a lot of pressure over the quarter from customer churn and rising competition.
Elsewhere, the company’s mass market broadband ARPU actually increased modestly, which benefited from a higher mix of fibre subscribers. However, in saying that, the total subscriber base still contracted enough to outweigh any pricing benefits.
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Free cash flow came in at $1.66 billion, which was a pretty sharp improvement from the $209 million we saw in the prior quarter. It appears Lumen is benefiting here from much tighter working capital management and lower capital expenditures. Capital expenditure came in at $1.04 billion. Still, the company’s net loss widened just slightly to $621 million from a $148 million loss in 3Q24.
Lumen’s management gave us a pretty cautious but constructive outlook. They noted that Q4 revenue will face continued pressure from declines in public sector Harvest contracts normalising to prior levels. But despite this, the CFO, Christopher Stansbury, reaffirmed expectations to finish near the high end of the $3.2 to $3.4 billion adjusted EBITDA guidance range.
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Are We Seeing A Turning Point
On the call, Lumen management reaffirmed its goal of generating $500 to $600 million in incremental digital revenue by 2028. This is to be mainly driven by the scaling of its digital ecosystem and trying to speed up the adoption of its Network-as-a-Service [NAAS] platform.
I think the latest Palantir deal should help greatly here with the latter; others will be more willing to jump into a connectivity partnership with Lumen if it also comes with the added AI benefits of Palantir. While Lumen is still in the early stages of this transformation, the company is seeing “tremendous NaaS adoption”, which is a good sign for investors.
In line with this target, Lumen is betting on something they call the 'Connected Ecosystem' strategy. It centers on expanding the digital reach side of the business through more high-impact partnerships from the likes of QTS Data Centres and Palantir. They are also looking to expand their access to 10 million new business locations.
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Valuation
Lumen’s current valuation still reflects a company that is going through a lot of transition. The company, however, is still trading at a slight discount to the sector, despite the stock run-up pre-earnings. Market cap sits at about $10.6 billion now, after the latest run-up in stock price, and enterprise value is roughly $26.2 billion.
On a trailing twelve-month basis, Lumen’s EV to sales ratio sits at 2.04x, just above the sector median of 1.92x. That is only a 6.3% premium despite the company’s pullback at the top line. On a forward EV to sales basis, this premium widens slightly to 8.6%, which tells us that investors may be pricing in some modest stabilisation or improvement in Lumen’s revenue base over 2026.
For Lumen, this was a good portion of relatively stable, recurring income that helped support overall revenue. Since some fixed costs and infrastructure investments remain unchanged throughout this quarter, we could see this have a bigger-than-expected effect on revenue going into next quarter.
I can also see this masking the growth in Lumen’s digital and enterprise 'Grow' segments. So it may make it harder for the market to fully appreciate the long-term transformation. So to sum up, while Lumen is making the right moves that we want to see with regard to digital growth, the temporary headwind from the legacy public sector revenue could see the stock momentum come to a halt.
Stock Price Forecast:
Here are the target price forecasts for the next 12 months from analysts.
Based on 8 Wall Street analysts offering 12 month price targets for Lumen Technologies in the last 3 months. The average price target is $6.56 with a high forecast of $11.00 and a low forecast of $4.00. The average price target represents a -36.19% change from the last price of $10.28.
Resource:
https://seekingalpha.com/article/4836748-what-we-learnt-from-lumens-3q25-earnings
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