Will Lumos Networks Become A Pure Fiber Play Soon?

In a report published Thursday, D.A. Davidson analyst James Moorman provided an update on Buy-rated Lumos Networks Corp (NASDAQ: LMOS), as Quadrangle GP Investors continues to reduce its involvement in the company, which now seems “on the path to become [a] 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. The firm's position now comprises 591,898 shares, which represent 2.6 percent of the company’s shares outstanding, after the latest sale of 600,000 shares took place this week.

While the analyst believes the investment firm “will have to wait roughly two to three months before they can conduct another similar sale,” he expects it to close out its 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 "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,” Moorman added.

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. Davidson expect this to continue, especially with Sprint Corp (NYSE: 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 stated.

“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," it added.

The firm maintained a Buy rating and a $21 price target on the stock.