Lumen Technologies Gross Margin - What's Wrong With This Picture.
During the integration phase of CenturyLink and Level 3 Communications (now Lumen) part of the focus was cutting unprofitable revenue. This can be confirmed up to a point, that being through mid-2019. Revenue declined while management was able to maintain gross margins, indicating unprofitable revenue was being cut as the below visual indicates.
Something changed, from mid-2019 through 2020 revenue slowed but losses in gross margins accelerated indicating profitable revenue was being lost. My analysis, given managements 2021 guidance, indicates this trend will continue through 2021. Results can be accessed here. These are two negative trends (revenue and gross margins) that need to be reversed to push the stock higher, probably much higher if reversed, lower if not.
Revenue could take years to turn given LUMN will take a one-time hit to revenue most likely exceeding $400m in 2022 due to a loss in CAF II revenues.
The stock appears to be fairly valued and reflecting guidance. The catalyst that would increase fair value would be guidance being revised up. The LUMN analyst presentation is April 7. If they regurgitate what everyone already knows as in past presentations and reaffirm guidance will probably disappoint. Investor expectations appear high given data and comments on various investment sites. The only exception is Wall Street who have called it correctly for some time now.
There are some positive signs developing as detailed in my last posting.