Why Lumen Technologies Rocketed Nearly 30% Higher Today

Shares of fiber network giant Lumen Technologies (NYSE: LUMN) rocketed 29.2% on Friday.

It was a big comeback for the stock, which had been decimated after its fourth-quarter earnings release on Tuesday afternoon.

Today, the company disclosed that CEO Kate Johnson took the post-earnings sell-off as an opportunity to buy a cool half-million worth of stock, a trade that was executed yesterday.

Johnson buys $500,000

Lumen's stock fell following Tuesday's earnings release, as fourth-quarter adjusted (non-GAAP) earnings per share came in ahead of expectations, while revenue only met expectations. Management also gave a full-year free cash flow outlook of $1.2 billion to $1.4 billion, though that included $300 million to $450 million in tax refunds that won't be repeated.

While the quarterly figures and full-year guide may have been underwhelming, they also weren't a disaster. Lumen continues to post revenue and adjusted EBITDA declines, but that is because it also has many legacy products whose use is declining. Meanwhile, management estimates that about 47% of its enterprise revenue base is in newer, growing products, and this "growth" cohort grew 7% last year, even as overall revenue declined 9.5%.

Still, Lumen's stock fell roughly 17% the next day. But Johnson showed confidence in her turnaround strategy after the sell-off. On Thursday, she bought 78,685 shares at an average price of $6.35 per share, totaling roughly $500,000. While the total purchase increased Johnson's direct and indirect holdings by only about 6.8%, half a million dollars is certainly not a small sum, even by CEO insider-buying standards.

Image source: Getty Images.

Does Lumen have significant upside?

Lumen's stock still looks quite cheap, at just 6.4 times this year's free cash flow guidance. In addition, the company recently sold its consumer-focused fiber-to-the-home business to AT&T (NYSE: T) for $4.8 billion, allowing Lumen to pay down a good chunk of its hefty debt load and refocus entirely on the enterprise segment.

That brought Lumen's debt load just under 3.8 times EBITDA, which is lower than it's been in recent years, though still not "low." So while Lumen is perhaps in better shape than it was last year, investors aren't likely to rerate the stock to a higher valuation until revenue and profits begin growing again overall.

Still, if that happens sometime in the next couple of years, Johnson's buy could look prescient. Lumen remains a risky play, but one with upside should its new AI-oriented networking solutions find favor in the marketplace.

Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.