Louisiana-headquartered Lumen Technologies (NYSE:LUMN) isn’t loved on Wall Street at the moment. After a sudden crash in LUMN stock, some folks might choose to steer clear out of fear of further share-price declines.
Before we pronounce judgment on Lumen, though, it is important to know the facts surrounding the abrupt shift in sentiment. After all, opportunities arise when markets react irrationally.
Formerly known as CenturyLink, Lumen is an important and perhaps underappreciated U.S. tech business. As InvestorPlace.com contributor Chris MacDonald put it, “Lumen’s fiber optic network is a key piece in the technological fabric of America.”
So, are investors treating Lumen unfairly? In the wake of not-so-bad financial results and a big-ticket government contract, Lumen certainly seems to deserve a re-rating.
A Closer Look at LUMN Stock
Will you see the glass as half-empty, or as half-full? The doubters and naysayers will likely say that LUMN stock is “breaking down” as it has fallen below the long-standing $11 support level. That is the glass-half-empty perspective. With the share price around $9.60 today, it is undeniable that the trend is to the downside.
On the other hand, going back to 2020, there is fairly reliable support at $9. Plus, there are other reasons to consider a glass-half-full perspective. For one thing, LUMN stock is trading around the bottom of its 52-week range of $9.66 to $15.45. This is something that value hunters will often look for.
Next, believe it or not, Lumen’s trailing 12-month price-to-earnings ratio is just 5.03. This shatters the presumption that all technology stocks are overpriced nowadays.
Finally, income-focused investors should be glad to know that Lumen pays out a generous forward annual dividend yield of 10.22%. If that is not a glass-half-full argument, then I don’t know what would be.
The Wrong Reaction
So, what caused the recent precipitous drop in LUMN stock? The culprit was Lumen’s fourth-quarter (Q4) and full-year 2021 fiscal results. Or more accurately, it was the market’s reaction to those results. Were the data points really that bad, though?
Over a one-year period, Lumen swung from a net earnings loss to a profit. That doesn’t sound bad at all, does it?
To be more precise, Lumen reported net income of $508 million in Q4 2021, compared to a net loss of $2.289 billion for the fourth quarter of 2020.
Furthermore, excluding certain special items, Lumen delivered free cash flow of $3.742 billion for full-year 2021, thereby improving over the $2.979 billion from full-year 2020.
Perhaps Wall Street was disappointed because Lumen’s Q4 2021 revenue of $4,847,000 indicated a year-over-year decline of 5%. Still, the bottom-line results should be considered just as important as the top-line results, if not more so.
Contract Worth a Cool Billion
In case you’re still skeptical of Lumen’s value proposition, I’ve got a billion reasons to invest in the company, courtesy of the U.S. government. Specifically, the U.S. Department of Agriculture (USDA) has awarded Lumen a task order valued at more than $1.2 billion.
Lumen will deliver a “fully integrated wide area data transport service with secure remote access, contact center and cloud connectivity solutions” for the USDA to over 9,500 locations.
This won’t only benefit Lumen and its stakeholders. It will also provide support to America’s agricultural industry by enabling nearly 100,000 USDA employees to “effectively manage vital farming, food and nutrition, forestry and rural economic development services.”
In other words, Lumen will bring its fiber connectivity and edge computing architecture to the USDA. It is a win-win for Lumen and for America’s farming-tech infrastructure.
The Bottom Line on LUMN Stock
The sellers had their reasons for dumping LUMN stock, no doubt. In hindsight, however, they may have overreacted to Lumen’s financial results.
Really, the big-picture scenario looks positive as Lumen has swung to profitability and has scored a lucrative government contract.
So, let the skeptics have their moment. In due time, Wall Street will come back to its senses and let the light shine on Lumen once again.
On the date of publication, David Moadel 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.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
