Private Connectivity Buildout Will Expand Digital Services Despite Legacy Headwinds

Key Takeaways

• Expansion of private connectivity, digital platforms, and fiber services is driving growth, new recurring revenues, and higher margins through enterprise and AI-driven demand.
  
• Cost-saving modernization, legacy migration, and improved financial flexibility are supporting earnings, margin expansion, and future investment in core digital infrastructure.
  
• Legacy revenue declines, heavy infrastructure investment, early-stage transformation efforts, fierce competition, and macroeconomic challenges could undermine Lumen's ability to achieve sustainable growth and improved profitability.

Catalysts

A networking company, provides integrated products and services to business and mass customers in the United States and internationally.

• Lumen’s ongoing buildout of its private connectivity fabric (PCF) and direct fiber access partnerships with hyperscalers and cloud providers positions the company to capture surging enterprise and AI-driven demand for high-capacity, low-latency networks, which should drive meaningful revenue growth and improve pricing power as digital transformation accelerates.
  
• The introduction and rapid adoption of the Lumen Digital platform and fabric ports enables a shift to a scalable digital services model—allowing for the layering of multiple high-margin network-as-a-service (NaaS), security, and voice offerings, thus unlocking new recurring revenue streams and lowering marginal delivery costs, supporting future EBITDA and margin expansion.
  
• Modernization and automation initiatives, including consolidation of network architectures and use of AI for operational efficiency, are on track to deliver at least $250 million in annual cost savings exiting 2025 and $1 billion by 2027, directly benefiting SG&A expense reduction and long-term earnings growth.
  
• Strategic focus on migrating legacy customers to modern IP
• and cloud-based solutions—especially in the enterprise and public sector segments—mitigates revenue declines from copper-based services, stabilizes customer churn, and supports net margin improvements as higher-margin fiber and digital services comprise a growing share of total revenue.
  
• Recent refinancing activities, improved credit ratings, and the company’s ability to attract large-scale infrastructure deals reflect increased confidence in Lumen’s long-term cash flow and balance sheet, lowering interest expenses and enabling further investment in growth initiatives, positively impacting net income and financial flexibility.

Lumen Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lumen Technologies's revenue will decrease by 3.2% annually over the next 3 years.
• Analysts are not forecasting that Lumen Technologies will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Lumen Technologies's profit margin will increase from -2.4% to the average US Telecom industry of 13.5% in 3 years.
• If Lumen Technologies's profit margin were to converge on the industry average, you could expect earnings to reach $1.6 billion (and earnings per share of $1.51) by about May 2028, up from $-313.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 4.1x on those 2028 earnings, up from -13.4x today. This future PE is lower than the current PE for the US Telecom industry at 17.0x.
• Analysts expect the number of shares outstanding to grow by 0.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.75%, as per the Simply Wall St company report.

Lumen Technologies Future Earnings Per Share Growth

Risks

• Despite progress in modernization, Lumen continues to experience persistent revenue declines in legacy Nurture and Harvest product categories (VPN, private line, TDM-based voice), with Harvest revenue down 9.8% and Nurture down 16.6% year-over-year; the pace of legacy shrinkage risks offsetting growth in new products and could erode overall revenues and operating margins.
  
• Lumen remains heavily reliant on capital-intensive infrastructure builds (e.g., $8.5 billion in PCF projects), and while initial refinancing has lowered annual interest expense, continued high capex and a still substantial debt load create long-term risks if revenue growth or margin expansion fails to materialize, potentially pressuring free cash flow, capex flexibility, and overall earnings.
  
• The long-term fiber and enterprise transformation is still in its early stages—success is not assured, with limited quantifiable evidence yet on whether digital platform adoption and new service layering will be sufficient or rapid enough to fully offset secular declines in legacy revenue, impacting future net margin and top-line growth prospects.
  
• The telecom sector faces intensifying competition from hyperscalers, regional fiber builders, and cable operators; these competitors may trigger price pressure, commoditized services, and require faster innovation cycles, potentially shrinking Lumen’s profitability and putting pressure on ARPU and EBITDA even as Lumen invests heavily in transformation.
  
• Lumen's performance has notable exposure to broader macroeconomic trends (inflation, rising interest rates, enterprise/government budget pressures), as well as regulatory and public sector spending cycles; these factors pose long-term risks to sales momentum, capex plans, and may constrain the company's ability to deliver sustainable margin and earnings improvement.

Valuation

• The analysts have a consensus price target of $4.786 for Lumen Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.4, and the most bearish reporting a price target of just $2.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.8 billion, earnings will come to $1.6 billion, and it would be trading on a PE ratio of 4.1x, assuming you use a discount rate of 8.8%.
  
• Given the current share price of $4.1, the analyst price target of $4.79 is 14.3% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.