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Lumen Applied sciences (NYSE:LUMN) is taking an outsized hit in Wednesday’s down market, falling 10.3% as Wells Fargo cuts its ranking to Equal Weight from Obese, on some heavier dividend dangers.
Latest disclosures present that earnings earlier than curiosity, taxes, depreciation and amortization at Lumen’s “RemainCo” (what’s left after divestitures of its ILEC and Latin American arms) are trending decrease than anticipated, analyst Eric Luebchow says.
That $10B in divestitures lead Luebchow to estimate that the RemainCo shall be producing simply $1.35B in quarterly run-rate EBITDA exiting this yr, that means he is chopping 2023 EBITDA forecasts to $5.3B, vs. the Avenue’s near-$5.9B.
And with capital expenditures possible within the $3.3B vary subsequent yr, that implies free money movement will keep within the $800M vary for coming years, vs. a dividend requirement of $1B-plus.
Leverage limits have turn out to be the “greatest inhibitor” to capital allocation, Luebchow says, and internet leverage will “drift” to the mid-4x vary till EBITDA begins to stabilize and develop once more – which might be within the 2024-2025 time-frame, he says.
In the meantime, incoming CEO Kate Johnson and a brand new group might look to revisit the corporate’s historic dividend, he notes.
“We nonetheless consider the administration group is on the right track, with bettering enterprise gross sales, a extra favorable enterprise combine with RemainCo and a concentrate on shopper fiber-to-the-home,” Luebchow writes. “However with ~20% or extra draw back threat within the occasion of a 50% dividend reduce, we see a unfavorable short-term catalyst within the subsequent 3-6 months.”
He is reduce his worth goal on the inventory to $8 from $12.50, now implying 11% upside after Wednesday morning’s double-digit decline.
Lumen (LUMN) on Monday closed the sale of its incumbent native alternate service enterprise in 20 states to Brightspeed.
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