Lumen Technologies Faces Mixed Signals as Strong Technicals Meet Fundamental Profitability Struggles

Technical Analysis

Lumen Technologies, Inc. (NYSE: LUMN) is exhibiting strong momentum as evidenced by its recent close at $5.71, reflecting a minor increase of 0.88% on August 15, 2024. The stock's relative strength index (RSI) of 70 indicates it is nearing overbought territory, which could lead to a price correction in the near term. Lumen is trading well above both its 50-day moving average of $1.99 and its 200-day moving average of $1.59, signaling a strong bullish trend. However, the average trading volume of approximately 34.58 million exceeds its 31.32 million average, illustrating increased investor interest. Key technical levels to watch include support at $5.57 and resistance at $6.63. The stock may test these levels as it reacts to broader market sentiments and upcoming earnings.

Fundamental Analysis

With a market cap of approximately $5.81 billion, Lumen Technologies presents a mixed fundamental profile. The company has reported an earnings per share (EPS) of -$2.10 and a price-to-earnings (P/E) ratio of -2.72, indicating that the company is struggling to generate profits. Despite the dismal earnings figures, Lumen's recent contract with New Mexico's education network to provide high-speed fiber connectivity signals strategic growth potential. The discounted cash flow valuation suggests an intrinsic value of $8.75, which is significantly higher than its current trading price, indicating that the stock could be undervalued.

Upcoming earnings scheduled for October 29, 2024, will likely be pivotal for the stock, as they provide insights into the company's financial health. The consensus target median price is around $5.50, suggesting limited upside in the short term given the ongoing bearish sentiment reflected in the consensus of 4 'Hold' ratings and 3 'Sell' ratings against only 1 'Buy' rating.

Predictions

For the next trading day on August 16, 2024, Lumen is likely to experience some volatility due to high RSI levels and the proximity to resistance. The stock may correct towards the support level of $5.57 as profit-taking may occur after the recent gains. Over the upcoming week, if the market remains stable, LUMN could move towards the resistance at $6.63, particularly if positive sentiment prevails from the education contract news.

Long-Term Investment Potential

In the long term, Lumen's investment potential hinges on its ability to turn around its earnings fortunes. The company's involvement in expanding high-speed connectivity suggests a strategic positioning in a growth market, particularly as demand for broadband services continues to rise. However, the negative EPS remains a concern, and investors should monitor earnings announcements closely for signs of improvement.

Overall Evaluation

Considering the combination of strong technical indicators, declining earnings, and mixed market sentiment, Lumen Technologies is categorized as a 'Hold' candidate. While there is intrinsic value that suggests potential for future gains, the immediate concerns related to profitability and market conditions warrant a cautious approach.