Frontier Communications Corporation
), a provider of telecommunication services in rural areas and
small and medium-sized towns of U.S., has prioritized network
expansion and dividend payment over debt reduction.
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Frontier is expanding its broadband network and is ramping up its
broadband Internet speed by utilizing DSLAM architecture along
with ADSL2+ and VDSL2 technology. This will allow the company to
provide a speed of 20 Mbps to 52% of its subscriber base by the
end of 2013 and 60% of its customers by 2013.
Currently, the company pays a dividend of 40 cents annually and
in the recently ended second quarter the company has paid $100
million as dividend, which translates into a pay-out ratio of
57%. Frontier announced that it will use its free cash flow to
expand its fibre-to-broadband network and pay dividends. The
company expects its free cash flow of $825-$925 million.
Frontier is the least indebted telecom company among its peers
with a long-term debt of $7,900.9 million at the end of
second-quarter 2013. Other small telecom carriers like
) has a long term debt of $20,283 million, while
) has a total debt obligation of $8867.9 million at the end of
However, out of $7900.9 million debt, Frontier has only $402
million of debt, which is maturing within 2015. The company wants
to use its free cash flow to repay its immediate debt and meet
its long-term leverage ratio target of 2.5.
Frontier's revenues continue to remain under pressure due to
declining voice revenues along with reduced switched and
non-switched access revenues. We believe that the company needs
to improve its top line to maintain its investment and dividend
Recently, Frontier reported adjusted earnings per share of 6
cents in second-quarter 2013, down 25% from the prior-year figure
but in line with the Zacks Consensus Estimate. However, quarterly
revenues of $1,190.5 million failed to meet the Zacks Consensus
Estimate of $1,196.0 million.
Frontier currently carries a Zacks Rank #3 (Hold). Other stock
worth considering within the same sector is
Cincinnati Bell Inc.
), which currently carries a Zacks Rank #1 (Strong Buy).