Wells downgrades Lumen to Underweight on unfavorable risk/reward

Wells Fargo analyst Eric Luebchow downgraded Lumen Technologies to Underweight from Equal Weight with a price target of $4, up from $1.75. While the recent private connectivity fabric sales provide a better liquidity run-way for the company, continued legacy revenue declines and limited free cash flow growth make the stocks’ risk/reward less favorable, the analyst tells investors in a research note. The firm says Lumen’s recently announced $5B of hyperscale artificial intelligence fiber deals drove recent enthusiasm in the stock and helps pave the way for improving free cash flow performance in the next few years. “But these are still relatively lower-return deals” that won’t move the needle on EBITDA longer term after upfront cash contributions, adds Wells. It believes Lumen’s free cash flow could still be minimal in years ahead.