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Lumen Technologies Inc (NYSE:LUMN) was downgraded to Equal Weight from Overweight, with the price target cut to $8 from $12.50 by Wells Fargo Wednesday.
Analysts there said the downgrade and price target cut is due to increasing risks to Lumen’s dividend in the near term.
“Our downgrade is based on: (a) a cut to our 2023 EBITDA estimates well below Street consensus, as recent disclosures suggest “RemainCo” EBITDA has been trending lower than we previously expected; (b) a FCF outlook of only ~$800MM in 2023 (vs. a dividend of $1B/year); (c) a recently announced CEO transition that may prompt a refresh of capital allocation; and (d) a leverage outlook that could drift into the low-to-mid 4x range without a change to capital allocation,” said analysts.
They said Wells Fargo still believes the management team is heading in the right direction, with “improving enterprise sales, a more favorable business mix with RemainCo and a focus on consumer fiber-to-the-home.”
However, he added that with “20% or more downside risk in the event of a 50% dividend cut, we see a negative short-term catalyst in the next 3-6 months.”