New products and partnerships could turn this ship around
Billy Duberstein (Lumen Technologies): Wireline telecom-operator Lumen Technologies is the rare deep-value, high-yielding stock left in the technology sector, with a current yield around 7.8%. Yet despite the market's skepticism, there's actually reason to think the company may be able to turn things around at some point. As we saw last quarter with both GameStop, ViacomCBS, and others, it's possible for deep-value stocks to work should a credible turnaround strategy emerge.
While Lumen has several legacy technologies in decline, taking its overall top-line down with it, the company has also been investing in new technological capabilities, all while generating enough free cash flow to support its dividend and pay down debt. New technologies include SD-WAN, a DDOS cybersecurity prevention service, and Lumen's new edge computing platform. The new edge data centers, built on top of Lumen's nationwide and global fiberoptic network, are designed to allow enterprises to deliver applications in less than 5 milliseconds.
All in all, Lumen is targeting the edge, data center, content delivery, and security services markets, which add up to an addressable market of $198 billion. It's also forecast to grow at 14% between now and 2025.
Lumen, of course, won't get all of that market, as they're very competitive. Additionally, that growth will still need to offset declining revenues in legacy technologies like copper wire and landline phones.
Yet at least a few other industry leaders see value in partnering with Lumen. In fact, the company just inked a new partnership with T-Mobile, which has become the clear leader in 5G wireless. With Lumen's 180,000 on-net fiber-connected buildings, connections to all the major clouds, and now edge computing data centers paired with T-Mobile's leading 5G capabilities, the two could provide a rather powerful next-gen platform for enterprises looking for lightning-fast speed and ultra-low latency across a distributed environment.
In short, Lumen is one of the last deep-value stocks with the potential to rerate but hasn't rerated yet. That makes it a rare contrarian opportunity in a very optimistic market.