Lumen Technologies falls amid new short idea at Hedgeye

Lumen Technologies (NYSE:LUMN) dropped 6% amid a new short idea at Hedgeye, which sees potential for 40% downside.

“Lumen’s financial position remains precarious, with high leverage (4.3x LTM Net Debt / Adjusted EBITDA), declining EBITDA margins, and limited free cash flow generation (i.e., not earning its cost of capital),” Hedgeye analyst Andrew Freedman wrote in a note on Tuesday. “The company’s recent debt restructuring has pushed out the near-term maturity wall to 2029, but with the core business in decline, it’s challenging to ascribe significant value in excess of the ~$20B in net debt and unfunded pension obligations.”

The new $5 billion “Private Connectivity Fabric” deal helps close a $1 billion liquidity gap through 2027, though it doesn’t address “fundamental issues” for Lumen, Freedman added.

The Hedgeye note comes after Kerrisdale Capital issued a short report on Lumen (LUMN) a week ago, which sent Lumen shares down 15% on Aug. 27.

“Lumen is the trusted network for AI and the recent announcements reflect not only our confidence but the confidence of others that are racing to secure bandwidth.AI requires data centers – data centers require connectivity – connectivity requires fiber. As AI grows, demand for Lumen’s network grows,” Lumen said in a statement emailed to Seeking Alpha last Tuesday.

Lumen (LUMN) is scheduled to present at the Citi TMT conference on Wednesday and the Bank of America media and entertainment conference on Thursday.

Lumen (LUMN) has short interest of 7.7%.