Will Lumos Networks Become A Pure Fiber Play Soon?

In a report published Thursday, D.A. Davison analyst James Moorman provides an update on Buy-rated Lumos Networks Corp LMOS, as Quadrangle GP Investors continues to reduce its involvement in the company, which now seems “on the Path to Become Pure Fiber Play.”

The Quadrangle Issue

Quadrangle has been trimming its exposure to the telecom services company since mid-2013, when it held a 25.8 percent stake in it. Their position now comprises 591,898 shares, which represent 2.6 percent of the company’s shares outstanding, after their latest sale of 600,000 shares, which took place this week.

While the analysts believe the investment firm “will have to wait roughly two to three months before they can conduct another similar sale,” they expect it to close out their position in Lumos in the near future.

Catalysts Going Forward

The note mentions a few catalysts for the company going forward. For starters, the ongoing network expansion and the Project Ark will set up a solid 2016. “We believe this will help set the stage for creating a strong fiber company and open up the opportunity to eventually divest the legacy business,” the analyst comments.

Although small cell development is still in its early stages, growth in this area is expected to be rapid over the next three to five years. In the last conference call, management said “RFP activity has picked up for small cells and macro dark fiber,” and experts at D.A. Davison expect this to continue, especially with Sprint Corp S’s network densification plan, which they think will focus on small cells.

Another important piece in the “transition to a stand-alone fiber company” will be M&A, the report states. They believe “Lumos is now focused in the near-term on acquiring dark fiber, lit fiber, or colocation assets to gain scale and become a pure play fiber company in the next 15-18 months.”

Consequently, the firm maintains a Buy rating and $21 price target on the stock.