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Lumen Stock Falls on Asset Sale and Mixed Results

Lumen Technologies beats earnings expectations and falls short on revenue. The stock is lower.

Lumen Technologies  (LUMN) - Get Free Report tumbled on Wednesday after the communications-infrastructure company said it would sell some of its U.S. business to private-equity firm Apollo Global Management  (APO) - Get Free Report in a deal valued at $7.5 billion.

The Monroe, La., company also posted mixed quarterly results.

Shares of Lumen at last check were down 9.1% at $11.59.

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Lumen will retain its incumbent local exchange carrier assets in 16 states, as well as its national fiber routes and competitive local exchange carrier networks, the company said. 

And it said it would continue to operate all assets and serve all customers until the transaction closes, which is expected in 2022.

"We like the narrowed simplified focus, but the deal comes with (free cash flow) dilution, prolonged elevated leverage, a pull-forward of cash taxes, and we believe a very likely (dividend) cut that will act as an overhang," said Cowen analyst Gregory Williams in a research note.

Still, Williams said was encouraged by the company’s narrowed focus and its pivot to more aggressive fiber-to-the-home development.

The new  company will be led by Verizon Communications  (VZ) - Get Free Report veterans Bob Mudge, Chris Creager and Tom Maguire, who together built out Verizon’s fiber-based Fios service.

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Lumen Chief Executive Jeff Storey said the company was shifting its focus to consumer markets it considers good upgrade candidates for its own fiber business.

Bloomberg reported last month that Lumen was negotiating to sell some assets to Apollo Global. Also last month, the company said it would sell its Latin American business to private-equity firm Stonepeak for $2.7 billion.

Separately, Lumen also posted mixed second-quarter results, beating analysts' earnings expectations but falling short of revenue forecasts.

Net income in the June quarter was $506 million, or 46 cents a share, compared with $377 million, or 35 cents a share, in the year-earlier quarter. Adjusted profit came to 48 cents, beating the FactSet analyst consensus of 41 cents a share.

Revenue came to $4.92 billion, down from $5.19 billion a year earlier and short of the FactSet call for $4.99 billion.

"It was a lackluster print beset with continued delayed Enterprise decision making, which we believe could be further delayed with the potential 'third wave' pandemic," Williams said.

However, the analyst added, the results were trumped by the asset sale to Apollo and a board authorization for a $1 billion share buyback.