Microsoft and Lumen: Uneven Growth Paths Ahead

The report explores the contrasting trajectories of Microsoft and Lumen Technologies, highlighting Lumen's recent gains through AI projects despite facing long-term challenges, while Microsoft maintains robust growth metrics. Investors should note potential impacts on stock performance based on ongoing developments.

Date: 22-10-2024

AI Rating: 6

The report provides a detailed comparison between Microsoft (NASDAQ: MSFT) and Lumen (NYSE: LUMN), focusing on their recent performance and future prospects. Key points include Lumen's drastic stock recovery from a low of $1 to $6 following a significant partnership with Microsoft's Azure cloud platform. This deal potentially fuels Lumen's future growth, although its historical decline presents serious challenges.

Lumen has suffered from five consecutive years of declining revenue and has been unprofitable for the past two years, suspending its dividend in 2022 due to issues mainly associated with its wireline business. The new contracts with Microsoft are expected to boost Lumen's cash flow substantially, projecting a turnaround in free cash flow to between $1 billion and $1.2 billion in 2024.

On the contrary, Microsoft continues to demonstrate strong growth with revenue expected to rise 14% and earnings per share (EPS) by 11% in fiscal 2025. This consistency makes Microsoft a more stable investment option.

Key Metrics:

Free Cash Flow (FCF): Lumen is expected to improve its FCF from negative $878 million to positive $1 billion to $1.2 billion due to new business contracts.
Earnings Per Share (EPS): Microsoft demonstrates solid growth in EPS with a CAGR of 16% from fiscal 2014 to 2024 and a projected increase of 11% in 2025.
Revenue Growth: Lumen's revenue is anticipated to decline 11% in 2024 to around $13 billion, reflecting ongoing struggles, while Microsoft's has consistently grown with a 14% forecasted increase in the next fiscal year.

Ultimately, while Lumen has achieved short-term recovery, its long-term performance remains uncertain against Microsoft's significant growth trajectory and market stability. The contrasting outlook between both companies will likely influence their stock price movements.

Stocks: MSFT LUMN