Shares of Lumen Technologies (NYSE:LUMN) slumped in after-hours trading following the lower-than-expected Q3 earnings. Further, the communication, security, and cloud services provider announced the elimination of its dividend. Earnings miss and dividend elimination didn’t sit well with the investors, leading to a selloff in LUMN stock. Investors should note that Lumen has a Neutral Smart Score on TipRanks.
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Here’s What’s Hurting LUMN Stock
Lumen Technologies delivered adjusted earnings of $0.14 a share, which compared unfavorably with the $0.49 reported in the prior year. Further, its adjusted EPS missed the Street’s expectations of $0.36 by a considerable margin.
Further, Lumen announced that it is eliminating dividends, and no dividend will be paid in the fourth quarter. The company plans to reallocate the capital from dividends to fund its growth and strengthen its balance sheet.
Adding to shareholders’ pain, revenues at its Harvest product division (which includes its legacy services such as voice) fell 6.4% year-over-year. The success of the Harvest Products division is critical to LUMN’s growth as it generates solid cash to fuel its growth initiatives and accounts for most of its direct margins.
Following these developments, Lumen stock fell 14.9% in the after-hours trade. Further, LUMN stock is down about 40% year-to-date.
Is LUMN a Buy or Sell?
On TipRanks, LUMN stock has a Moderate Sell consensus rating based on three Hold and three Sell recommendations. Meanwhile, the average analysts’ price target of $8 implies 13.5% upside potential.
TipRanks’ data shows that hedge funds are buying the dip in LUMN stock. Hedge funds bought 188.7K shares last quarter. Overall, LUMN stock has a Smart Score of five out of 10, implying a Neutral outlook.
Bottom Line
Lumen is optimizing its assets by divesting non-core businesses to deliver sustainable growth in the long term. While these initiatives are positive, inflationary pressure and higher operating costs could hurt its near-term earnings potential and limit the upside in its stock.
