Frontier Communications Slips to Sell on Poor Q4 Results – Analyst Blog

On Apr 9, Zacks Investment Research downgraded Frontier Communications Corp. FTR – a provider of telecommunication services to rural areas – by a notch to a Zacks Rank #4 (Sell).

Frontier reported dismal fourth-quarter 2014 numbers wherein both the top and the bottom line missed the Zacks Consensus Estimate. Moreover, the company’s earnings per share witnessed a sharp decline of 42.9% year over year. The company has delivered negative earnings surprises in two of the last four quarters, with an average miss of 2.92%.

Moving ahead, Frontier expects to continue experiencing declines in wireless backhaul revenue in 2015. This is because a number of its carrier partners might migrate to Ethernet solutions at lower price points while some customers may switch to competitors. Thus, we believe deteriorating wireless backhaul business is expected to remain a headwind for Frontier.

Notably, in 2014, total business revenue excluding the Connecticut operations declined 5% year over year, chiefly as a result of decreases in the company’s voice services revenue and wireless backhaul revenue. We believe that a further decline in revenues from these businesses could affect the company’s EBITDA growth.

Additionally, labor related issues could also result in increased cost of operations, and in turn, adversely affect the company’s profitability. To add to the woes, integration costs as well as higher financial leverage will continue to weigh on the company‘s earnings.

Meanwhile, Frontier has been witnessing a downtrend in earnings estimates following the dismal fourth-quarter results. The weak results prompted a 24% and 30.8% decline in the Zacks Consensus Estimate for 2015 and 2016 to 19 cents and 18 cents per share, respectively, over the last 60 days.

Stocks to Consider

Better-ranked stocks in the same industry include Chunghwa Telecom Co., Ltd. CHT, Vonage Holdings Corporation VG and Level 3 Communications, Inc. LVLT. All the three stocks sport a Zacks Rank #1 (Strong Buy).

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