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Global stocks

Raising Our BioNTech (BNTX: NASDAQ) FVE to $172 Following Q2 Update; Forthcoming Oncology Data Could Add Upside

The emerging biotech’s first commercial vaccine, for COVID-19, received its first authorization in December 2020, and its early-stage pipeline and mRNA technology platforms have caught the eye of several large pharmaceutical companies, resulting in collaborations and partnerships. BioNTech’s internal discovery platform is focused on mRNA, including off-the-shelf and personalized mRNA drugs, but opportunistic acquisitions have brought in targeted antibodies and cell therapies as well. As such, BioNTech is not overly reliant on any one key drug candidate or drug class at this point, and it is poised to tackle cancer via many different mechanisms.

Further, the company has a burgeoning vaccine pipeline for infectious diseases. In partnership with the Bill & Melinda Gates Foundation, BioNTech is developing vaccines for HIV and tuberculosis, and the company’s COVID-19 program in partnership with Pfizer and Fosun Pharma was built off an existing partnership with Pfizer for an influenza vaccine. The COVID-19 vaccine, Comirnaty (BNT162b2), quickly progressed through human trials, culminating in authorization in the United States and Europe in December 2020.

Financial Strength

BioNTech has historically burned through cash to fund research and development of its pipeline. The company has minimal debt on its balance sheet, as it has funded discovery and development with equity issues and collaboration payments from partnerships with large pharmaceutical firms. Outside of BioNTech’s COVID-19 vaccine candidates, we think the earliest approval could arrive in 2023, which would put the company on a path toward steady profitability. Management has taken advantage of a couple of opportunities to acquire early-stage assets and expand its geographic footprint to establish a U.S. research hub at low prices.

BioNTech’s revenue soared to EUR 5.3 billion in the second quarter, with roughly EUR 1 billion in direct revenue for its COVID-19 vaccine in BioNTech territories and EUR 4.1 billion in gross profit share and milestones from partners (chiefly Pfizer, which reported $7.8 billion in COVID-19 vaccine revenue in the quarter). BioNTech now expects full-year revenue from the COVID-19 vaccine of EUR 15.9 billion in 2021. Based on these changes, full global sales of Pfizer/BioNTech’s COVID-19 vaccine of $35 billion in 2021 and $39 billion in 2022, as sales in developing markets and third-dose booster sales to developed markets continue to grow. Increased our assumed probability of approval for Pfizer/ BioNTech’s flu program BNT161 from 60% to 70% given continuing validation of this technology in infectious diseases.

Overall, these changes boost our fair value estimate to $172 per share from $139. BioNTech (and peer Moderna) rapidly building a moat based on novel mRNA technology, although multiple potential competitors, significant uncertainty around the duration of COVID-19 revenue beyond 2022, and ongoing validation of this technology outside of COVID-19 prevent us from assigning BioNTech a moat at this time. While the initial series continues to show 90%+ efficacy at preventing severe disease, efficacy against symptomatic infection has been slowly declining, from a peak of 96% down to 84% in individuals that are more than four months past their second dose. Both Pfizer/BioNTech and Moderna have early phase 2 data showing that a third dose of their authorized vaccines significantly boosts neutralizing antibody activity against the original strain and variants, including the delta variant.

Bulls Say’s

BioNTech’s pipeline, which relies on expertise in mRNA and bioinformatics, will be difficult to replicate by competitors.
BioNTech will be able to command a premium price with its personalized cancer therapies, if successful.
The rapid development of COVID-19 vaccine Comirnaty bodes well for the rest of BioNTech’s pipeline and the future of its mRNA research platform.

Company Profile

BioNTech is a Germany-based biotechnology company that focuses on developing cancer therapeutics, including individualized immunotherapy, as well as vaccines for infectious diseases, including COVID-19. The company’s oncology pipeline contains several classes of drugs, including mRNA-based drugs to encode antigens, neoantigens, cytokines, and antibodies; cell therapies; bispecific antibodies; and small-molecule immunomodulators. BioNTech is partnered with several large pharmaceutical companies, including Roche, Eli Lilly, Pfizer, Sanofi, and Genmab. Comirnaty (COVID-19 vaccine) is its first commercialized product.

(Source: Morningstar)
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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Global stocks

Vinci SA’s (PAR: DG) Strong Construction Market Drives for First Half Recovery & Shares Are Fairly Valued

The concessions business earns high profit margins and enjoys significant barriers to entry. In contrast, the contracting business is less attractive on a stand-alone basis but allows Vinci to draw on its expertise to bid on less competitive concession Greenfield projects, where construction capabilities are needed and thus allow Vinci to selectively bid for higher-margin contracting projects compared with pure-play contracting firms.

Vinci’s highly profitable acquisition of its motorway concession portfolio from the French government in 2006 has formed the backbone of the firm over the past 15 years. However, subsequent public disapproval of the deal has seen the state become less generous in awarding long-term extensions to Vinci’s existing network. Mergers and acquisitions have helped Vinci become the second-largest airport operator. The acquisition of the energy contracting division of ACS will provide Vinci with exposure to the fast-growing renewable energy sector as well as eight concessions mainly in electrical transmission.

Financial Strength

Vinci has been able to withstand the worst of global travel restrictions, which have kept earnings from the group’s concessions business heavily depressed, without a significant impact on the group’s balance sheet. Vinci has enough liquidity to meet financial and operating requirements despite low visibility on the duration of the recovery for the concession segment. Vinci holds EUR 9 billion of cash and cash equivalents, which is enough to cover debt repayments until 2025. Vinci also has access to an unused EUR 8 billion credit facility, which brings Vinci’s total liquidity to EUR 17.3 billion at the end of June 2021. Both Vinci’s airport and auto routes businesses have experienced a sharp upturn in traffic once travel restrictions have eased, which is expected to continue for the rest of 2021. Vinci’s healthy balance sheet has allowed the company to refinance debt at extremely attractive rates.

Bull Says

Vinci’s portfolio of diversified concession assets is a unique opportunity for investors to own irreplaceable infrastructure across multiple assets. Returns are supported by long-term concession contracts and favorable demographics.
Vinci’s balance sheet and global presence will allow the company to be well-positioned to boost their portfolio of high-quality assets, should governments look to privatize ageing infrastructure.

A record high order book of EUR 43 billion for the contracting segment provides earnings visibility as traffic from the concessions business recovers.

Company Profile

Vinci DG (XPAR) is one of the world’s largest investors in transport infrastructure. Significant concession assets include 4,400 kilometers of toll roads in France and 45 airports across 12 countries, making Vinci the world’s second-largest airport operator in terms of managed passenger numbers. The concessions business contributes less than one fifth of group revenue but the majority of operating profit. Vinci’s contracting business is made up of three divisions, offering a broad variety of engineering and construction services.

(Source: Morningstar)
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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Global stocks

Japanese General Insurers Tokio Marine (8766:TKS) Report Stronger-Than-Expected April-June on Rate Hikes, Fewer Accidents

and JPY 5,000 for Sompo Holdings (7% upside) after the three Japanese general insurers reported strong results for April-June, the first quarter in the fiscal year ending March 2022. The shares have risen 4%, 7%, and 13%, respectively, since we published a 51-page report “Pandemic Impact on Japanese Insurers Has Passed” on June 30. 

Economic profit for April-June reached 39% of full-year guidance for Tokio Marine, 48% for MS&AD, and 43% for Sompo, while net profit on a financial accounting basis was 51% of full-year guidance for Tokio Marine, 52% for MS&AD, and 46% for Sompo.  The insurers have thus earned more than 40% of their full-year guidance in the first three months of the year; however, any upward revisions to guidance would likely come later in the year given that insurers’ quarterly earnings are subject to short-term fluctuations from seasonality and technical factors.

The main driver of the stronger-than-expected results was the core domestic nonlife business, which benefited from a continued lower frequency of auto accidents, adjustments to pricing in the voluntary auto line (though we expect price cuts ahead), and robust rate hikes in fire insurance to address rising costs from water leakage and damage. 

Rate hikes in overseas insurance as the global market hardens were a secondary driver. The safe completion of the Tokyo Olympics confirms that potential large losses that might have occurred had the event been canceled are no longer a concern.

Company Profile

Dating back to 1879, Tokio Marine is Japan’s oldest insurance company and was its top property and casualty insurer in terms of market share for many decades. After mergers of its smaller rivals in the past few years, the company is now roughly the same size in the domestic nonlife market as MS&AD and Sompo Holdings, but it remains the most valuable listed Japanese insurer in terms of market capitalization due to its larger overseas business portfolio. The majority of its overseas business is in the U.S., where it has purchased four specialty insurers since 2008: Philadelphia Consolidated, Delphi Financial, HCC, and PURE. It is a member of the Mitsubishi keiretsu group and holds minority stakes in a number of group companies that also rank among its shareholders.

(Source: Morningstar)

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Commodities Trading Ideas & Charts

Duke Energy Corp’s (NYSE: DUK) Increase in FVE to $99 per share After 2nd Quarters Earnings

In North Carolina, Duke’s largest service territory, we view the regulatory framework as average and continue to expect Duke will receive support for its investments in the state. In early 2021, regulators approved Duke’s settlement agreement that resolves historical recovery of coal ash costs and provides clarity on future recovery.  Indiana remains constructive. Regulators approved a peer-average allowed return on equity. The subsidiary is allowed recovery for investments for renewable energy and recovery on and of investments for coal ash remediation, with a forward-looking test year. 

Management recently entered into an agreement to sell 19.9% of the entity at an attractive valuation. Duke’s $60 billion, five-year capital investment plan is focused on clean energy, as the company works toward net-zero carbon emissions by 2050 and net-zero methane emissions by 2030. Management notes growth opportunities beyond its five-year forecast, noting expectations for $65 billion to $75 billion of capital expenditures helping to support 7% annual rate base growth. Management is transitioning Duke away from coal generation. The company, which has among the largest coal fleets in the industry, aims to reduce its coal fleet by up to 70% and install up to 20 gig watts of renewable energy by 2030, depending on the outcome of its Carolina Integrated Resource Plan.

Financial Strength

Duke Energy Corp’s (NYSE: DUK) Increase in FVE to $99 per share after 2nd quarter earnings. We expect $60 billion of capital investment over the next five years. The company has manageable long-term debt maturities. Plans to sell a minority interest in Duke Energy Indiana helps reduce equity needs to fund this plan.  Duke has ample cash liquidity and borrowing capacity available under its master revolving credit facility. We believe Duke’s dividend is well covered with its regulated utilities’ earnings. Our expectations for 3.5% average annual dividend growth will represent a 70% payout based on our 2025 earnings estimate. Duke’s liquidity position and cash flow generation should give investors confidence that it can maintain and grow its dividend.

Bull Says

  • Duke’s regulated utilities provide a stable source of earnings. The company’s large capital expenditure plan should drive rate base and earnings growth for the next several years. We think management’s 5% to 7% earnings growth target from 2021 to 2025 is achievable. 
  • The company operates in mostly constructive regulatory jurisdictions, which account for most of the company’s revenue. 
  • Duke’s management team has focused on core regulated operations and growth investments.

Company Profile

Duke Energy Corp (NYSE: DUK) is one of the largest U.S. utilities, with regulated utilities in the Carolinas, Indiana, Florida, Ohio, and Kentucky that deliver electricity and gas to more than 7 million customers. Duke operates in three major segments: electric utilities and infrastructure; gas utilities and infrastructure; and commercial renewable.

 (Source: Morningstar)

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Commodities Trading Ideas & Charts

Raising Targa Resources (NYSE: TRGP) FVE for Targa after increasing our G&P volumes to reflect the recovery in 2021

The firm managed through a very difficult 2020 via sharply reduced capital spending, a nearly 90% dividend reduction, and expense cuts. So far in 2021, it has done a good job, reducing debt by nearly $800 million. Targa is by no means particularly conservative on capital spending plans–its initial 2021 growth spending plans were twice our original expectations, as the rest of the midstream space hunkers down. The firm has also hinted that it may spend virtually all its excess cash on rebuying assets from its Stonepeak joint venture in early 2022 at a cost of nearly $1 billion.

LPG exports are largely contracted out to 2022 and sent mainly to Asian and Latin American markets. The Grand Prix NGL pipeline will be a highly attractive asset tha takes advantage of Targa’s position in the Permian Basin to move over 350,000 barrels per day of NGLs by our estimates in 2021 (expandable to 550,000 b/d) to Mont Belvieu, and links Targa assets at both ends of the pipe, giving it more control over the molecule and ability to earn multiple fees. The Grand Prix pipeline will reduce Targa’s costs for NGLs, as it will no longer pay third-party tariffs to transport its NGLs to market.

Financial Strength

After updating our model to reflect Targa’s higher guidance, our fair value estimate increases to $38 per share. Targa’s second-quarter results benefited from higher Permian gas volumes, thanks primarily to higher activity by private operators. As a result, Targa increased its 2021 EBITDA guidance to a midpoint of $1.95 billion from its prior midpoint guidance of $1.85 billion last quarter. The incremental cash is being applied smartly toward debt reduction for the time being, as Targa’s 2021 leverage target falls to 3.5 times from 4 times last quarter. 

Total consolidated debt fell to $7 billion from $7.4 billion sequentially. Year-to-date debt reduction totals $780 million, which is impressive. Targa also announced a new 250-million-cubic-feet-per-day plant in the Permian to be on line in early 2022 while holding 2021 expected capital spending flat. 

Peers tend to be around 75%-85% investment-grade or letter of credit-backed.Total liquidity at the end of the second quarter was $2.9 billion with no major maturities until 2026. Targa is now targeting leverage of 3-4 times as well as an investment-grade rating, which is a marked shift from prior commentary.

 Leverage now stands at 3.8 times at the end of the second quarter, and Targa expects it to be around 3.5 times by the end of the year, which our current model supports.However, it’s not clear whether Targa can achieve both its new leverage goals and execute its expected repurchase of the joint venture assets from Stonepeak (included in its May presentation), which could take place as early as the first quarter of 2022.

Bulls Say’s 

  • Targa is leveraged to the high-growth Permian, and its Grand Prix pipeline is expected to increase volumes 25% in 2021.
  • Targa has substantial excess cash after its dividends and capital spending plans in 2021 to allocate toward reducing leverage.
  • Targa is a significant fractionation player at the attractive Mont Belvieu hub.

Company Profile

Targa Resources is a midstream firm that primarily operates gathering and processing assets with substantial positions in the Permian, Stack, Scoop, and Bakken plays. It has 813,000 barrels a day of gross fractionation capacity at Mont Belvieu and operates a liquefied petroleum gas export terminal. The Grand Prix natural gas liquids pipeline recently entered full service.

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Commodities Trading Ideas & Charts

Viper Energy Partners (NASDAQ: VNOM) Acquires Attractive Acreage for $500 Million from Swallowtail

investment stockbroker risk analysis. Financial analysis using phone app and laptop. Market trading profit.

The deal is a $500 million cash and stock (55% stock, 45% cash) purchase of 2,302 net royalty acres in the Midland basin from Swallowtail Royalties, a private mineral rights firm where its acreage deals are financed by Blackstone funds. The price on a per acre basis is at over $200,000 per acre, roughly 80% higher than historical pricing and 40% higher than its last significant deal activity in May 2020.

Despite the high per-acre price, Viper has advantages, as 65% of the acres are operated by Diamondback with a net royalty rate of 3.6%. The value of the deal is demonstrated by the fact that Viper was able to offer a clear long-term growth trajectory for its Diamondback acres, substantially reducing uncertainty around future cash flows, but it wasn’t able to do the same for its non-Diamondback acres. 

The Diamondback development plan is essentially minimal production today to 1,000 barrels of oil per day (bo/d) in 2022 to over 5000 bo/d by 2024. We expect this path to generate a solid amount of value for Viper. 

Company’s Future Outlook

 At first glance, it is expected some modest upside to our fair value estimate, while maintaining our narrow moat rating. The deal is expected to be completed by the early fourth quarter, and expected post-deal leverage will be about 2 times, which we consider reasonable. Based on Diamondback’s current development plan, average net oil production in 2022 is expected to be over 1000 bo/d and Production is expected to approach 5000 bo/d by 2024.

Company Profile

Viper Energy Partners (NASDAQ: VNOM) was formed by Diamondback Energy in 2014 to own mineral royalty interests in the Permian Basin. At the end of 2020, Viper owns 24,350 net royalty acres that produced 26,551 boe/d. Proved reserves are mostly oil, and at the end of 2019 stand at 99,392 mboe. Viper’s mineral and royalty interests give it significant exposure to perpetual ownership of high margin, primarily undeveloped assets with no capital requirements to generate its long-term free cash flow. Viper is a variable distribution partnership that is taxed like a corporation in the United States.

(Source: Morningstar)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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LICs LICs

Australian Foundation Investment Company (ASX: AFI) Reports FY21 Earnings & Maintains Final Dividend

Two young women talking together with a tablet in the living room. They sit spaced apart to prevent the virus.

The portfolio’s dividends and distributions remained basically constant from the pcp, with the revenue fall driven entirely by a decrease in interest income from deposits.

The Company’s pre-tax NTA per share climbed to $7.45 per share at the end of June 2021, before accounting for the final dividend. This represents a 25% increase above the pre-tax NTA as of 30 June 2020.

In keeping with the FY20 final dividend, the Company declared a final fully franked dividend of 14 cents per share. The full-year dividend will be 24 cents per share, fully franked, which is the same as the full-year dividend in FY20.

The dividend paid as on 31st august is expected to be 14 cents. The current P/E is marked at 58.10 and dividend yield at 2.81%

During this time, the Company dabbled in international stocks by investing a modest portion of its capital (0.5 percent of the portfolio) in an i-”-nternational equities portfolio. (

The worldwide portfolio includes of high-quality companies with a significant competitive advantage, good growth prospects, and a diverse range of industries, as determined by the investment team.

Company profile

Australian Foundation Investment Company (ASX: AFI) is Australia’s largest life insurance company, and it has been investing in Australian and New Zealand equities since 1928. The Date of Listing of Australian Foundation Investment Company (ASX: AFI) is 30 Jun 1962. Incorporated in VIC as Were’s Investment Trust Ltd on 13/07/1928; name changed to Australian Foundation Investment Company Ltd on 25/10/1937. Australian Foundation Investment Company (AFIC) is a closed-end investment corporation. The firm focuses in Australian stock investments. The Company’s investment goal is to provide investors with investment returns in the form of steam franked dividends and capital appreciation. 

(Source: FactSet)

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Philosophy Small Cap Technical Picks

Groupon (NAS: GRPN) Outperforms Expectations in Q2; EBITDA Outlook Improved Due to One-Time Benefit; FVE Maintain

Groupon provides daily deals (in the form of online vouchers) from local merchants to consumers. Groupon’s online discounts cover a variety of services including restaurants, health, beauty and fitness, and home and garden. Groupon’s average take rate on the purchase and/or usage of the vouchers is between 30% and 35%.

Customers can make one-time voucher purchases without guaranteeing repeat business with either the merchant or Groupon in general. This dynamic has led to lackluster revenue growth and consistently high customer acquisition costs that pressure margins. Groupon’s revenue growth has been decelerating and gross margins have been declining since the company went public in 2011.

Additionally, the firm is implementing a more aggressive customer acquisition strategy that requires higher marketing expenses. Although a restructuring plan is in place for a turnaround, we remain concerned about future revenue growth and gross margin compression, both of which may prevent Groupon from yielding excess returns on capital in the long run.

Financial Strength

Groupon ended 2020 with net cash of $421 million. The firm has $250 million in 3.25% convertible notes, which were issued in April 2016 and are due in April 2022. Groupon also has $200 million in revolver borrowings. Groupon burned $63.6 million in cash from operations in 2020. The company’s very high accrued merchants payable balance (nearly 25% of cost of revenue) has a positive impact on cash from operations. Groupon’s free cash flow to equity/revenue ratio has been negative the past three years, but we project this ratio to hit the teens in 2025 as a result of a return to revenue growth in 2022 and margin expansion throughout our explicit forecast period.

Total revenue declined 33% year over year to $266 million, as 86% growth in local was more than offset by the expected 75% decline in goods. Local revenue reached 71% of the prepandemic 2019 levels. Groupon’s gross profit increased 41% to $194 million, resulting in a 73% gross margin, as the lower-margin goods revenue continued to decline. In addition, unredeemed vouchers (mainly in international markets) added $10 million to gross profits. Operating loss of nearly $2 million was a significant improvement from losses of $72 million last year and $7 million in 2019.

In addition, gross profit per North America active user was 10% above the 2019 level. International customer count declined 37% year over year, but the firm generated 10% more gross profit from each than in 2020. Total gross profit per active user increased year over year (17%) and sequentially (13%). Purchases per active user increased 11% year over year but declined 3% sequentially. The firm expects full-year adjusted EBITDA between $115 million and $125 million (up from previous guidance of $110 million- $120 million). The increase is less than the $10 million benefit in the second quarter as the firm is planning to continue its aggressive marketing during the second half of this year. Groupon maintained its $950 million-$990 million full-year revenue guidance.

Bulls Say

Groupon should maintain its first-mover advantage as it leverages its current relationships with local merchants to provide more attractive offerings for consumers.
As more local businesses become more tech-savvy, they may need less hand-holding from Groupon’s salesforce, which could lead to lower costs for Groupon.

Company Profile

Groupon acts as the middleman between consumers and merchants, offering a variety of products and services at discounts via its online store. It offers consumers daily deals (in the form of online vouchers) from local merchants. Groupon also sells products directly to consumers. It generates revenue from the take rate on the purchase and/or usage of the vouchers (40% of total revenue) and from direct sales (60% of total revenue). More than 65% of Groupon’s revenue comes from North America.

(Source: Morningstar)
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IPO Watch

Robinhood’s (HOOD) IPO publicly filed its S-1 to register

The company, which will list under the ticker name HOOD, sold 52.4 million shares for $32 billion, somewhat less than expected.

Robinhood is raising money by selling shares to the general public, allowing the company to swiftly raise a substantial sum of money. It is one of the most high-profile IPOs of 2021. 

On March 23, 2021, Robinhood filed a confidential initial public offering (IPO). Robinhood filed an amendment to its S-1 form on July 19, 2021, reporting the sale of 52.4 million shares.

It expects to raise $ 2.3 billion from its initial public offering. It plans to utilize the funds to develop new goods, increase marketing spending, and expand its business. 

Over the course of its eight-year existence, the stock trading app has raised $ 5.6 billion in 23 consecutive investment rounds.

The company has yet to finalize the listing date of Robinhood’s IPO, which will be listed on the Nasdaq stock exchange under the ticker code HOOD.

Company Profile

Robinhood (HOOD) was founded by Stanford graduates Vlad Tenev & Baiju Bhatt in 2013. A broker-dealing company named Robinhood functions similarly to any other financial institution that allows the purchase and sale of securities. The firm is FINRA-regulated, a member of the Securities Investor Protection Corporation, and registered with the Securities and Exchange Commission. The Securities and Exchange Commission (SEC) regulates the financial markets. Robinhood, founded in Silicon Valley in 2013, was the first company to offer a mobile-first stock trading experience. The company’s application is sleek and simple to use, and it has made it easier for regular investors to buy derivatives, allowing them to speculate on future stock price swings. In addition, Robinhood pioneered the zero-fee business strategy in the stock brokerage industry.

(Source: FactSet)

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Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Dividend Stocks

Asset Sales and Plan for Greater Investment by Lumen Technologies Inc’s (NYSE: LUMN) Put Onus on Management to Return to Sales Growth

Lumen’s fiber holdings make it one of the biggest communications infrastructure providers in the U.S., and its extensive network is matched by few other companies. However, technological advances continually improve networking efficiency and enable less costly solutions to store and transport data. Consequently, even in Lumen’s business services segments, which account for over 70% of total revenue, we think revenue is likely to continue declining. Lumen’s business customers will continue to benefit from the ability to use shared, rather than private, networks and technological advancements that require less bandwidth and enable more efficient routing.

Lumen’s intention to sell a substantial portion of its incumbent local exchange carrier, or ILEC, business should relieve the firm of a big chunk of its fastest-declining revenue (voice) and lower-quality consumer Internet revenue. While the divestiture alone should moderate the firm’s sales declines, it will also result in significantly lower cash flow, which will be further diminished because the firm expects to ramp up investment in its remaining business. 

Financial Strength

Lumen Technologies Inc’s (NYSE: LUMN) continued strengthening its financial position in 2020. In 2020, the firm paid down nearly $2 billion in debt and refinanced $13 billion in debt to push out maturities and reduce interest rates. At the end of 2020, the firm had $400 million in cash, $32 billion in debt, and a net debt/adjusted EBITDA ratio of 3.6. Less than $7 billion of the debt now matures before the end of 2024. With the free cash it generates, we project Lumen has the ability to reduce debt materially while also having a substantial amount of cash to return to shareholders and not scrimping on any capital investment needs. It reliably pays about $1 billion in annual. While the firm is set to sacrifice well below 30% of EBITDA between these transactions and the expiration of CAF-II funds the firm has been receiving. Its dividend for the year 2020 is marked at 10.3 % while in 2019 it was 7.6 %.

Bull Says

  • After selling much of its ILEC business, Lumen may be able to return to sales growth over the next few years rather than face perpetual decline.
  • Lumen has further shifted its business away from the declining consumer and toward the enterprise, which leaves it with a better chance for future top-line growth.
  • The explosion in data use, particularly mobile, could make fiber assets much more lucrative than they have historically been, and Lumen’s fiber holdings place it in the top two or three in the U.S.

Company Profile 

Lumen Technologies Inc’s (NYSE: LUMN) is one of the United States’ largest telecommunications carriers serving global enterprises with 450,000 route miles of fiber, including over 35,000 route miles of subsea fiber connecting Europe, Asia, and Latin America. Its merger with Level 3 further shifted the company’s operations toward businesses (over 70% of revenue) and away from its legacy consumer business. Lumen offers businesses a full menu of communications services, providing collocation and data center services, data transportation, and end-user phone and Internet service. On the consumer side, Lumen provides broadband and phone service across 37 states, where it has 4.5 million broadband customers.

(Source: Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.