BTIG Research Initiates Lumos Networks At Buy, Calls Co. A Small-Cap Play On High-Speed Fiber Expansion

Lumos Networks Corp (NASDAQ: LMOS) is a “small-cap play on the expansion of fiber to support high speed data services at enterprises as well as the ongoing 4G upgrade and densification of wireless networks,” BTIG Research’s Walter Piecyk said in a report. He initiated coverage of the company with a Buy rating and a price target of $17.50.

Data comprises 60 percent of Lumos Networks’ revenue and EBITDA. Of this revenue, 70 percent is driven by fiber connectivity to enterprise locations and wireless towers. These two segments combined are growing at a rate of more than 15 percent per annum, analyst Piecyk noted.

Investments Expand Growth Opportunity

Lumos Networks invested the FCF generated by its legacy residential business and the money raised in 2015 to fund improvement and expansion of its fiber network. The company has invested more than $250 million over three years to strengthen its fiber footprint.

“Lumos is not just speculatively investing in the hope of revenue growth, it carefully picks anchor-tenant funded projects in locations that it believes it can further leverage with additional revenue growth opportunities. Lumos' fiber network extensions have already driven massive growth in the number of wireless towers that Lumos currently serves with fiber,” Piecyk wrote.

The company also operates a local exchange carrier, which is on the decline. Lumos Networks should be able to separate these operations from its fiber business within the next six to nine months, which would significantly enhance the company’s strategic value, the analyst commented.

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