Lumen Technologies Inc. shares were falling sharply in Thursday trading after the telecommunications company announced it was eliminating its dividend and selling another business, moves that have prompted tough questions about the future of the business.
The dividend announcement came in conjunction with Lumen’s LUMN, -18.01% third-quarter earnings report, which also showed misses on profit and revenue. Additionally, the company announced late Wednesday that it has agreed to sell its business in Europe, the Middle East, and Africa for $1.8 billion.While the decision to eliminate the dividend came slightly earlier than Citi Research analyst Michael Rollins expected, it wasn’t a surprise.
Lumen “can turbocharge its growth initiatives” such as automation and fiber-to-the-home, “with a sharper focus while removing a major stock overhang.”“As for the stock, expect volatility with a technical wash-out, though admittedly not many yield-oriented investors remaining, and an additional sell-off on the still-challenged fundamentals…counteracted by large short interest covering, and an eventual potential return for value investors, all bolstered with a buyback,” Williams wrote.
But in light of the dividend elimination and sale of the EMEA business, MoffettNathanson analyst Nick Del Deo still wasn’t convinced that the company’s efforts will pay off.
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