What happened
Shares of Lumen Technologies (LUMN) are losing ground this week. The telecom company's share price was down 18.7% from the previous week's market close as of 10:45 a.m. ET Friday, according to data from S&P Global Market Intelligence.
Following some hotter-than-expected economic data, investors became concerned that the Federal Reserve will return to raising interest rates. Fed chairman Jerome Powell confirmed that more rate hikes will be needed to get inflation under control. As a company with very high levels of debt, Lumen is particularly sensitive to rising interest rates, and investors responded to the hawkish rate outlook by selling out of the stock.
So what
While the Fed chose not to raise rates at its last meeting, it's now likely that the central bank will deliver more hikes this year. In addition to bearish news on interest rates, Lumen stock might have been primed for a pullback following the pop that it enjoyed last week.
Its share price gained ground in last week's trading following news that the company had teamed up with Alphabet and Microsoft to launch a new network-connections service, but debt concerns have once again taken center stage for investors.
Now what
Lumen stock is now down roughly 65% in 2023. At today's prices, the telecom is valued at less than 13% of this year's expected sales, but it still carries roughly $19.7 billion in long-term debt.
The company is in the process of pivoting away from its old copper-based internet connection services in favor of rebuilding its business around high-performance fiber lines and edge-computing services.
If Lumen manages to find even moderate success with its turnaround, the stock could have explosive upside at current prices. But there's not much visibility on whether the telecom specialist will be able to pull it off and overcome its debt.
