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Why Lumen Technology Rallied Today, Even On A Bad Day For The AI Sector

The Motley Fool · 1d ago

Key Points

  • Lumen Technologies defied the AI sector today, rallying by double-digits.

  • Two insiders recently bought stock on the post-earnings, post-election dip.

  • Lumen is down a lot from its May highs, but its turnaround is still a work in progress.

Shares of Lumen Technologies (NASDAQ:LUMN) rallied on Tuesday, up 10.9% as of 12:33 p.m. EDT.

The broader AI sector was largely down today on the back of today's hotter-than-expected inflation report. However, Lumen defied its peers with a double-digit gain after an SEC filing late yesterday revealed that two executives had recently purchased shares on the open market.

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Lumen's CEO and one director buy more stock

Lumen's stock has taken a big hit recently, down over 50% from its May highs. The stock took another leg lower after the company's recent third-quarter earnings release showed mixed results, though the post-election sector-wide sell-off may have been a bigger factor. Investors sold AI stocks hard, both leading up to and after the midterm elections, fearing a slowdown or reversal in the build-out.

Still, some executives think the hate has gone too far. Yesterday, Lumen filed forms with the SEC revealing that on Nov. 6, CEO Kate Johnson bought 100,000 shares at an average price of $3.96 on the open market, and that director Michelle Goldberg bought 25,000 shares at $3.91. Those are significant amounts; even the smaller purchase by Goldberg increased her shares of the company by about one-third.

Colorful lines illuminate a communication network across Earth.

Image source: Getty Images.

Where Lumen goes from here

Lumen is still a turnaround story burdened by debt; however, it has reduced its debt in recent years by selling assets, while attempting to grow newer network products relevant to the AI revolution. While its legacy businesses are in decline, "strategic" revenue accounted for 55% of total revenue last quarter and grew 10%.

Lumen now trades at a cheap-looking 5 times enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization). Yet whether these insider buys pay off depends on Lumen continuing to grow these new products faster than its legacy network products decline.

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.