Citi reiterates Buy rating on Lumen stock, sees upside from divestiture

Investing.com - Citi has reiterated a Buy rating and $6.00 price target on Lumen (NYSE:LUMN), citing potential upside to fiscal year 2026 free cash flow from divestitures and tax benefits. The stock, currently trading at $4.36, has shown remarkable strength with a 223% return over the past year, according to InvestingPro data.

The research firm expects Lumen’s upcoming earnings call, scheduled for July 31, could highlight potential upside, with free cash flow improvements potentially accelerating net debt deleveraging to benefit equity holders. Citi identified five positive catalysts that could improve value over the next 12 months, including additional PCF sales of up to $3.5 billion, cost reductions, and improved annual business revenue trends. InvestingPro analysis reveals a strong free cash flow yield, though the company’s overall Financial Health Score remains "Fair" at 2.13 out of 5.

Citi believes the market may be underestimating Lumen’s prospects to significantly improve its balance sheet and reduce net debt leverage. The firm projects net debt leverage declining from 4.4x EBITDA in the first quarter of 2025 to 3.3x on its revised proforma 2026 outlook.

The positive outlook is partly based on Citi’s above-consensus fiscal year 2026 free cash flow forecast of $1.3 billion, or approximately $1 per share, which exceeds the consensus estimate of $0.2 billion.

Citi’s Buy rating on Lumen has an upside duration within 90 days, expiring October 16, 2025, with the firm remaining buyers of Lumen shares heading into second-quarter earnings.

In other recent news, Lumen Technologies has announced a significant agreement with AT&T to sell its Mass Markets fiber business for $5.75 billion in cash. This transaction, expected to close in the first half of 2026, includes about 1 million fiber customers and infrastructure spanning over 4 million locations across 11 states. Additionally, Lumen has been active in financial restructuring, with its subsidiary Level 3 Financing, Inc. planning to sell $2 billion in First Lien Notes due 2033. The proceeds from this offering will be used to redeem existing higher-interest notes, aiming to reduce annual interest expenses by approximately $100 million.

BNP Paribas (OTC:BNPQY) Exane recently raised its price target for Lumen to $4.00, maintaining a Neutral rating on the company’s stock. The firm noted Lumen’s optimism about growth in its Business segment, driven by artificial intelligence demand, despite challenges in other areas. In corporate governance developments, Lumen’s recent shareholder meeting resulted in the election of board members and the approval of a reverse stock split. This split allows for a consolidation of shares and was voted in favor by a significant majority.

Furthermore, Lumen is preparing for the closure of its consumer fiber deal with AT&T by 2026, intending to use the proceeds to reduce its debt. The company’s strategic moves aim to address its balance sheet concerns and improve its financial position. These developments reflect Lumen’s ongoing efforts to restructure and optimize its operations in a rapidly evolving market.

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