Lumen Earnings: Mostly Poor Results Are Inconsequential as Recent Contract Wins Suggest an Upturn

Lumen’s second quarter was consistent with recent trends, with sales continuing to decline at a mid-single-digit rate organically and margins remaining depressed. However, the firm’s recent announcement that it will receive $5 billion to build private networks to help advance hyperscalers’ artificial intelligence needs, including a recently announced deal with Microsoft, has reduced the liquidity risk that we believe has hampered the stock. We are reducing our Morningstar Uncertainty Rating to Very High, from Extreme, and we’re slightly lowering the discount rate we use for Lumen’s valuation to reflect the lower risk.