(Benzinga)Frontier Communications Corp (NASDAQ:FTR) Raymond James analyst Frank G. Louthan IV upgraded the rating from Market Perform to Outperform, with a $6 price target. The sell-off in May positively affected the stocks risk/reward profile, creating an attractive buying opportunity.
The company launched its equity offering, including $750 million in common stock, along with mandatory convertible preferred stock worth $1.75 billion to help finance the purchase of assets in Florida, Texas and California from Verizon Communications, Inc. (NYSE: VZ).
The analyst expects the deal to be closed in 1H16, without any regulatory hurdles. This deal has been favorable for Frontier Communications risk/reward profile over the next 12 months.
We believe the companys poor 1Q results in early May exacerbated what was likely to be added pressure on the stock given its telegraphed equity financing announced back in February. With the stock off ~20 percent for the month of May, we believe the likely accretion from its Verizon acquisition make for an attractive buying opportunity, Louthan said.
The analyst expects the Verizon deal to be accretive for Frontier Communications, which is likely to drive the share price up from the current levels.
At the same time, the Raymond James report also said that Frontiers recent business trends have been worse than expected and there is still a lot of time before the deal closes (potentially ~12 months), in which the company could see additional headwinds, the Verizon properties could worsen, or some combination. Additionally, Frontier also has to raise ~$8.35 billion of debt to fund the deal.
Frontier Equity Analysis
Frontier Communications Corp (NASDAQ:FTR) opened trading today as $5.18 and is trading in the range of 5.16-5.36 today. Frontier’s current market cap stands at $5.20 billion.
Compared to other peers in the Telecom Services Domestic sector, Frontier has outperformed in terms of quarterly revenue growth year over year at .19 vs. the industry average of 0.06. Frontier’s earnings per share is currently at .04, which equlas the sector average of .04.
Frontier is currently covered by 13 Wall Street analysts. The mean target price is $7.18 according to First Call. This presents a solid downside to the current price of the equity. The Mean Recommendation sits at 2.4 which is based on 2 Strong Buy, 2 Buy and 8 Hold ratings.
The most recent analyst actions consisted of DA Davidson upgrading the stock on June 3rd and Morgan Stanley initiating coverage with an upgrade rating back in May.
The current quarter EPS consensus estimate is .03 with revenue estimates of 1.37B. Sales are expected to grow at a 19.10% rate. Frontier reported actual earnings last quarter of 0.02 which fails to beat the .04 consensus estimate, a -50.00% surprise.
Frontier Communications Corporation, a communications company, provides regulated and unregulated voice, data, and video services to residential, business, and wholesale customers in the United States. The company offers data and Internet services comprising residential services, such as wireline and wireless broadband, dial up Internet, portal, and e-mail products; commercial services, such as Ethernet, dedicated Internet, multiprotocol label switching, time division multiplexing data transport services, and optical transport services; Frontier Secure suite of products for computer security and technical support; and commercial voice over Internet protocol services. It also provides local and long distance voice services, including local voice services; enhanced services, such as call forwarding, conference calling, caller identification, voicemail, and call waiting services; long distance network services; and packages of communications services. In addition, the company offers switched access services that facilitate other carriers to use the companys facilities to originate and terminate their local and long distance voice traffic. Further, it provides satellite and terrestrial video services; a range of third-party communications equipment to small, medium, and enterprise business customers; and directories. As of December 31, 2013, Frontier Communications Corporation had 2,803,500 residential customers; 270,800 business customers; 1,866,700 broadband subscribers; and 385,400 video subscribers. The company was formerly known as Citizens Communications Company and changed its name to Frontier Communications Corporation in July 2008.