Last Update 05 Jan 26

LUMN: Turnaround And Modernization Efforts Will Face Ongoing Revenue And Execution Risks

Analysts have lifted their price target on Lumen Technologies to $8.00 from $4.25, citing stronger than expected Q3 performance across revenue, EBITDA, and free cash flow, along with reaffirmed 2025 guidance and ongoing modernization and stabilization efforts.

Analyst Commentary

Analyst reactions to the latest results highlight a mix of optimism on execution and cash generation, balanced by caution around sustainability and long term growth.

Bullish Takeaways

Bullish analysts argue that the upside surprise in revenue, EBITDA, and free cash flow supports a higher valuation framework and justifies the move to an $8 price target.
The reaffirmed 2025 outlook for adjusted EBITDA, capex, and free cash flow is viewed as evidence that management can execute on its multi year turnaround and cost reduction plan.
Ongoing modernization and stabilization initiatives are seen as catalysts that could improve growth visibility and expand the company’s long term earnings multiple if execution remains consistent.
Stronger near term cash generation, helped by timing on PCF deals, is seen as bolstering balance sheet flexibility and reducing perceived financial risk, which can support higher equity valuations.

Bearish Takeaways

Bearish analysts question how repeatable the Q3 beat is, noting that some of the free cash flow strength stems from deal timing, which may not translate into a structurally higher earnings base.
There is concern that, despite cost cuts and expense reductions, the core revenue growth profile remains challenged, limiting upside to long term valuation multiples.
Execution risk around large scale modernization and stabilization projects is seen as elevated. Any slippage could pressure the 2025 guidance and undermine the recent re rating.
Some analysts remain cautious on competitive dynamics and legacy product declines, warning that continued erosion could offset efficiency gains and constrain sustainable growth.

What's in the News

Lumen launched Defender Managed Rules for AWS Network Firewall, extending its Black Lotus Labs threat intelligence directly into AWS environments to help enterprises block threats earlier in the kill chain without adding infrastructure complexity (Client Announcements).
The company introduced Lumen Defender Advanced Managed Detection and Response with Microsoft Sentinel, a fully managed, cloud native security solution that combines Lumen SOC services with Microsoft’s security stack and curated threat intelligence (Product Related Announcements).
Lumen and Meter unveiled an integrated WAN to LAN solution that unifies Lumen’s high performance wide area networking with Meter’s intelligent LAN platform to simplify AI era enterprise connectivity and management (Client Announcements).
A strategic partnership with QTS Data Centers will connect Lumen’s AI ready infrastructure to 16 new QTS campuses, creating a low latency foundation for hyperscalers and enterprises building next generation AI and cloud applications (Client Announcements).
Lumen announced a major expansion of its Internet On Demand service, extending Network as a Service connectivity to over 10 million additional U.S. business locations so customers can spin up scalable bandwidth in minutes via a digital portal (Business Expansions).

Valuation Changes

Fair Value Estimate remains unchanged at $7.23 per share, indicating no revision to the intrinsic value assessment despite recent performance.
The Discount Rate has risen modestly from 9.41% to about 10.30%, reflecting a slightly higher perceived risk profile or required return for equity holders.
Revenue Growth is effectively unchanged at approximately -5.09% annually, suggesting expectations for top line contraction remain intact.
The Net Profit Margin edged down slightly from 13.74% to about 13.73%, implying only a minimal adjustment to long term profitability assumptions.
The Future P/E increased slightly from 6.75x to about 6.92x, pointing to a modestly higher valuation multiple on expected earnings.

Refocusing on enterprise and digital segments, backed by AI-driven infrastructure and platform contracts, positions the company for margin expansion and sustained long-term earnings growth.
Financial restructuring, asset sales, and targeted partnerships bolster network modernization, capitalize on data growth, and support commercial reach in high-demand connectivity solutions.
Persistent legacy revenue declines, competitive pressures, debt burden, and dependence on fewer customers threaten growth, margin stability, and long-term financial resilience despite business model shifts.

Catalysts

About Lumen Technologies

A networking company, provides integrated products and services to business and mass customers in the United States and internationally.What are the underlying business or industry changes driving this perspective?

Lumen's large pipeline of AI-driven network infrastructure and Platform Connectivity Fiber (PCF) contracts-particularly with hyperscalers and data center providers-positions the company to capture long-duration, higher-margin recurring revenues from explosive data growth, benefiting long-term revenue and margin expansion.
Growing adoption of Lumen's Network-as-a-Service (NaaS) and digital platform by enterprise customers, combined with upcoming integrations into major cloud and tech solution marketplaces, expands commercial reach and improves network utilization, supporting future revenue acceleration and operating leverage.
Strategic refinancing, deleveraging, and the pending sale of the consumer fiber-to-the-home business to AT&T will materially strengthen Lumen's balance sheet, reduce interest expense by $300–$400 million annually, and free up capital for enterprise-focused growth initiatives, directly impacting future net earnings and free cash flow.
Enhanced government support (including recent tax legislation and AI-related policy), together with ongoing partnerships with public sector and hyperscalers, will accelerate Lumen's network expansion and digital modernization, fueling incremental demand and margin opportunities in secure, high-speed connectivity and network-centric security solutions.
The migration away from legacy voice/copper and mass market exposure, as well as disciplined cost reductions (modernization and simplification savings), ensures resources are focused on high-growth, higher-margin enterprise and digital segments, stabilizing EBITDA and setting the stage for multi-year earnings growth as the business pivots from decline to expansion.

Lumen Technologies Earnings and Revenue Growth

Lumen Technologies Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Lumen Technologies's revenue will decrease by 2.7% annually over the next 3 years.
Analysts are not forecasting that Lumen Technologies will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Lumen Technologies's profit margin will increase from -9.2% to the average US Telecom industry of 12.7% in 3 years.
If Lumen Technologies's profit margin were to converge on the industry average, you could expect earnings to reach $1.5 billion (and earnings per share of $1.42) by about September 2028, up from $-1.2 billion today.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 4.7x on those 2028 earnings, up from -4.1x today. This future PE is lower than the current PE for the US Telecom industry at 15.4x.
Analysts expect the number of shares outstanding to grow by 1.12% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 9.47%, as per the Simply Wall St company report.

Lumen Technologies Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The company continues to face persistent declines in revenue from Nurture and Harvest legacy products (notably Ethernet, VPN, voice, and copper networks), which management expects to remain in "double-digit decline territory for the foreseeable future," potentially offsetting or overwhelming growth areas and creating ongoing top-line and EBITDA contraction.
While Lumen has pivoted heavily to large enterprise, public sector, and AI-focused fiber infrastructure, the complexity, risk, and lower margins of new route construction-as opposed to higher-margin overpulls-may hinder efficient revenue scaling; over-reliance on a small number of hyperscaler and data center customers for multiyear contracts could also make Lumen vulnerable to customer concentration risks, which could impact revenue stability and margins.
The sale of the consumer fiber-to-the-home business, while providing short-term cash for deleveraging, reduces Lumen's total addressable market and recurring revenue base and elevates exposure to the highly competitive, lower-growth B2B connectivity segment, potentially limiting long-term revenue diversification and growth.
Despite progress in shifting business models and reducing debt, Lumen's large outstanding debt load and ongoing substantial capital expenditures create financial vulnerability; refinancing risk and interest rate volatility-especially as tax and depreciation benefits fade-could negatively impact net earnings, free cash flow, and the ability to fund further strategic transformation.
Secular industry trends of intensifying competition-from cable operators, wireless carriers (including fixed wireless), alternative fiber providers, and emerging technologies like low-earth orbit satellites-pose a risk of pricing pressure and customer churn; as legacy revenue declines outpace growth in new digital/network offerings, there is risk of continued margin compression and net income deterioration.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $5.062 for Lumen Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.33, and the most bearish reporting a price target of just $2.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.8 billion, earnings will come to $1.5 billion, and it would be trading on a PE ratio of 4.7x, assuming you use a discount rate of 9.5%.
Given the current share price of $4.72, the analyst price target of $5.06 is 6.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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