Why Lumen Stock Gained After Big Volatility Today

Analysts at a high-profile financial services company are bearish on Lumen stock.

Lumen Technologies (LUMN 0.91%) stock closed out today’s trading with moderate gains. The company’s share price ended the daily session up roughly 1%, according to data from S&P Global Market Intelligence. The stock had been down as much as 11% earlier in the day’s trading.

Lumen initially fell today following bearish analyst coverage. Goldman Sachs initiated coverage on the stock with a one-year price target of $1 per share. But the S&P 500 index closed out the day up roughly 0.3%, and positive gains for the broader market helped reverse the sell-off for Lumen stock.

Telecom industry tailwinds may not help Lumen

In contrast to its sell rating on Lumen stock, Goldman Sachs analysts actually see some favorable dynamics ahead for the U.S. telecommunications industry. Most notably, the financial services company sees competitive pressures and the need for heavy capital expenditures moderating. But it doesn’t believe that these trends will be a major benefit for Lumen. With today’s gains, Goldman’s $1 per-share price target would imply downside risk of roughly 10%.

Lumen remains in the relatively early stages of a turnaround initiative that sees it attempting to re-energize sales and earnings growth by prioritizing business segments with sustainable expansion opportunities. But the company faces a challenging debt situation, and it may need to spend heavily if it hopes to carve out a lasting position in the still highly competitive telecom industry. In short, the favorable industry trends that Goldman believes will benefit the telecom space may not help to lift Lumen anytime soon.

A reverse stock split could be in the cards for Lumen

With the stock hovering just above the $1 per-share level that represents the minimum level needed to continue trading on the New York Stock Exchange, it’s also possible that the company may need to complete a reverse stock split in order to avoid being delisted. While a potential reverse stock split wouldn’t directly impact the business, it could create valuation headwinds. If so, that could create less favorable conditions if the company hopes to use stock-based compensation to help fund its operations.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.

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