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Typically, stocks trading below $5 per share are called penny stocks. Investing in penny stocks is a high-risk high-reward strategy as they are smaller companies and vulnerable to macro-economic headwinds such as inflation and interest rate hikes. Alternatively, penny stocks offer investors with an opportunity to generate outsized gains and create game-changing wealth over time.
One such little-known penny stock is Lumen Technologies (LUMN). Valued at a market cap of $1.8 billion, Lumen Tech provides integrated communications to residential and business customers. Lumen has two primary business segments that include:
Business- It provides products and services to enterprise and commercial customers.
Mass Market- The segment focuses on consumer and small business customers.
Let’s see if Lumen Technologies is a good stock to buy right now.
A Big Ticket Deal with Microsoft
Lumen Technologies stock surged close to 30% last week after the company disclosed a strategic deal with Microsoft (MSFT). According to the partnership, Lumen will use the Microsoft Cloud to drive digital transformation efforts. Meanwhile, Microsoft will use Lumen’s expertise to expand network capacity and capability to meet the growing data center demand arising from the artificial intelligence megatrend.
Datacenters are crucial to powering enterprises' computing capabilities, and the Microsoft Cloud offers a variety of tools and platforms to fuel the AI megatrend. Lumen will be a strategic supplier for Microsoft’s network infrastructure needs and support the next generation of applications for the latter’s global customers.
Lumen’s AI-ready infrastructure should strengthen connectivity capabilities between Microsoft’s data centers by providing network capacity, performance, stability, and speed as data demand increases.
Erin Chapple, the corporate vice president of Azure Core Product and Design, stated, “Lumen has the network infrastructure and the digital capabilities needed to help support Azure's mission in creating a reliable and scalable platform that supports the breadth of customer workloads—from general purpose and mission-critical, to cloud-native, high-performance computing, and AI, plus what's on the horizon.”
Lumen expects the deal with Microsoft will help it lower technology costs, replace legacy systems, improve product offerings, and modernize its workloads. Moreover, Lumen aims to use Microsoft Entra solutions to prevent identity attacks and partner with the tech giant to create telecom-based solutions. This element should improve Lumen’s cash flow by over $20 million in the next 12 months.
What is the Target Price for LUMN Stock?
Recently, Goldman Sachs (GS), a leading investment bank, initiated coverage on Lumen stock with a 12-month average target price of $1, below the current trading price of $1.77. Goldman Sachs sees a few favorable dynamics for the telecom sector in the U.S. and expects competitive pressures as well as heavy capital expenditures to moderate in the future. Alternatively, the financial services heavyweight does not expect these tailwinds to majorly benefit Lumen.
Lumen’s balance sheet debt and lack of a competitive moat would result in higher company spending, making it a high-risk investment right now. Further, Lumen remains unprofitable, and its losses per share are forecast to widen from $0.15 in 2024 to $0.20 in 2025.
Out of the 10 analysts covering LUMN stock, five recommend “hold,” one recommends “moderate sell,” and four recommend “strong sell.” The mean target price for LUMN stock is $1.47, which is higher than the current trading price.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
