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.
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).
CINCINNATI BELL (CBB): Free Stock Analysis
CENTURYLINK INC (CTL): Free Stock Analysis
FRONTIER COMMUN (FTR): Free Stock Analysis
WINDSTREAM CORP (WIN): Free Stock Analysis
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