Yes, the company's financial picture isn't the greatest currently, but the ability to potentially reduce the outstanding share count by 70% at the current stock price is something that I don't think can be ignored. There would also be a hit in the tens of millions of dollars this year as well if further borrowings were used for share repurchases in 2023.Īt this point, however, it almost seems negligent for the board and management to completely ignore the buyback idea.
LUMEN TECHNOLOGIES STOCK FORECAST 2025 FREE
If the company didn't pay that off say exactly at the end of this year, it would imply that the midpoint of next year's free cash flow forecast would be slightly negative, and you'd have to take down the following years' numbers as well, holding all else equal. If we use a 7.5% interest rate for some of the borrowings coming due in the next couple of years, mainly in 2025, that would be a pre-tax annual interest expense of around $112 million. Lumen Future Outlook (2023 Investor Presentation) In the footnotes, one of the key assumptions is that $1.5 billion in after-tax proceeds from the sale are used to further pay down debt. Well, the company's Investor Presentation earlier this month featured the following guidance slide that dampened those hopes a bit. My thought was the funds could be repaid from the proceeds coming from another asset sale (the EMEA business) that is expected to close later this year or early in 2024.
In my previous article, I mentioned the possibility of Lumen borrowing some money from its various lending facilities for the short term to buy back shares. With many central banks still raising rates, and the Fed potentially doing so again later this year, interest rates could rise even further. That free cash flow forecast would have looked a lot better if LIBOR rates used for the company's borrowings were even one percentage point lower currently. With around $10 billion or so of debt being variable rate borrowings in recent years, and interest rate hedges ending, interest expenses may not have come down as much as hoped. We knew that a hit was coming after two major divestitures last year were completed, helping to pay down a chunk of debt, but the hope was that there still would be some free cash flow left from the remainder of the business.Īs I have discussed previously, the prior management team probably got a little caught off guard with the surge in interest rates. Free cash flow guidance was in a range of zero to $200 million, which was well below what many were expecting. While there aren't any major borrowings due in the near term, the company isn't exactly flush with cash.Īs investors know, one of the reasons why shares have dropped so much this year was due to poor guidance. While management over the last 5 years has done a great job of reducing total debt, the firm is still around $18.5 billion in the hole as the chart below shows. The problem for Lumen right now, however, is that it doesn't have a ton of financial flexibility. With about 12.6% of the company's outstanding share count short, a buyback could also potentially get some of those shorts to cover their bearish bets against this name. The company's 10-K filing stated that the buyback had $1.3 billion left at the end of 2022, meaning more than 70% of shares could be retired at the current price. Lumen's close at $1.82 was down 41 cents from when I last wrote about the name, meaning the overall market cap is under $1.83 billion. With the stock well below $2 again now, it seems like something has to give, and perhaps rather soon. Since then, shares have continued to fall, closing last week just a stone's throw away from their recent multi-year low. The company's buyback plan had well over $1 billion remaining, which represented a good chunk of the firm's market cap. Back in April, I detailed how communication services company Lumen Technologies ( NYSE: LUMN) faced a major decision with its share repurchase program.
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