Fitch Ratings has lowered its outlook on
Frontier Communication Corporations
) from stable to negative based on low revenue growth
expectations in the next two to three years. Couple of months
earlier, rating agency Standard and Poor (S&P) also lowered
FTR's corporate credit and senior unsecured debt ratings by one
notch to BB-.
Fitch has argued that FTR's revenue will remain under pressure
mainly based on the falling business service and data revenue,
which has registered a modest decline last year. The rating firm
cited that there has not been any significant employment growth,
which in turn has hurt the business service revenue.
In Jul 2010, Frontier Communications acquired
Verizon Communications Inc.
) local wireline operations in 14 U.S. states. With the
acquisitions, Frontier has taken control of over 4.8 million
rural landline customers thus trebling in size to become the
largest rural service provider in the United States.
Inspite of the acquisition, FTR's legacy wireline business
remains highly challenged based on competition from wireless and
other competitive offerings like
Time Warner Cable's
) VOIP (voice over Internet protocol) service. To counter these
problems the company has increased its sales force and has
expanded its distribution channels, thus increasing the operating
Amidst these negativities there are some positive news for
FTR, as the company's existing residential customer churn has
come down and the average revenue per residential customer has
increased. Additionally, FTR had a strong free cash flow of
$975.3 million at the end of 2012, which is relatively strong
considering the high capital expenditure required to expand the
However, Fitch is not confident of FTR's debt position and
expects a net debt to EBITDA ratio of 3.2 times in 2013, with a
marginal improvement of 10 basis points in 2014. Fitch currently
maintains a BB+ rating on FTR, which is one notch below the Junk
category. Fitch has warned that if FTR's net leverage to EBITDA
ratio rose to 3.3 times or more in 2013, the company could face
further rate cut.
Currently Frontier Communications Corp carries a Zacks Rank #3
Other Stock to Consider
Another related company in the telecom industry is
Consolidated Communications Holdings Inc.
) and currently carries a Zacks Rank #3 (Hold).
CONSOL COMM IL (CNSL): Free Stock Analysis
FRONTIER COMMUN (FTR): Free Stock Analysis
TIME WARNER CAB (TWC): Free Stock Analysis
VERIZON COMM (VZ): Free Stock Analysis Report
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