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Why Lumen Technologies Stock Sank 24.5% in 2020

By Keith Noonan - Jan 8, 2021 at 9:14AM

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The telecom stock got hit hard last year, but the underperformance could signal opportunity for investors.

What happened

Shares of Lumen Technologies ( LUMN 0.65% ) fell 24.5% across 2020's trading, according to data from S&P Global Market Intelligence. Despite strong momentum for the broader market, the telecom company's share price dipped amid lagging performance for its core broadband service offerings. 

^SPX Chart

^SPX data by YCharts

Lumen Technologies, which was previously known as Century Link, got hit hard amid the coronavirus-driven sell-offs that rocked the market in March. Deteriorating performance for the company's core copper-based broadband internet services meant that the stock sat out most of the broader market's recovery in subsequent months, but the telecommunications company deserves a close look from value-focused investors seeking big dividends. 

A split fiber optics cable.

Image source: Getty Images.

So what

Lumen's recent business performance has been admittedly underwhelming. The third-quarter report the telecom published in November included sales that fell roughly 3.4% compared to the prior-year period and revenue that dipped roughly 1.6% over the trailing-12-month reporting period.

Lumen is facing declining pricing power for its core broadband services. However, the company is also making a big push into high-performance fiber-based offerings and software services, and cost-cutting initiatives at the business could also help boost margins. 

Now what

Lumen Technologies stock has made gains early in this year's trading. The company's share price is up roughly 8% in January so far. 

LUMN Chart

LUMN data by YCharts

Lumen stock looks cheaply valued trading at roughly 7.4 times this year's expected earnings and 0.6 times expected sales. The company also pays a big dividend, with shares yielding roughly 9.5% at current prices. 

Lumen stands out as a cheaply valued turnaround play that offers investors a substantial returned-income component. The big dividend should help provide a buffer as the business pursues its new growth initiatives, and the stock has the potential to post big gains if the company continues to see success on those fronts. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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$12.37 (0.65%) $0.08

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