On June 27, 2014, we issued an updated research report on
Frontier Communications Corp.
). We believe the company's efforts in the form of product
deployment, broadband expansion and cash flow management by
reducing operating expenses would remain accretive to the company's
growth. However, decline in residential customers along with lower
switched access and non-switched access revenues remain a concern
for the company. Frontier currently carries a Zacks Rank #3 (Hold).
We remain encouraged by sustainable broadband subscriber growth
supported by strong network expansion and improved pricing
structure and expect it to accelerate in the rest of 2014. Frontier
also remains committed to control costs by focusing on productivity
and customer oriented enhancements, thus improving efficiencies in
its daily operations.
Frontier has also made changes in the channel distribution
structure, which will continue to benefit the company. The carrier
expects acceleration in offline channel growth owing to ramp up of
sales effort of additional channel partners, particularly in
residential and small and medium-business segments.
Moving on, Frontier is awaiting regulatory approval to acquire
) wireline operation in Connecticut, which will provide the former
with 900,000 voice connections in the region. In addition, Frontier
will gain AT&T's 180,000 U-Verse video subscribers and 415,000
broadband connections. Further, the carrier plans to extend U-Verse
service to 100,000 customers in regions where U-Verse is currently
present as well as in those which it still does not cater to.
However, Frontier remains significantly challenged by slow economic
recovery in its service territories and is coping with the loss of
legacy fixed telephony business to wireless and other offerings. A
decline in customer premise equipment or CPE sales in first-quarter
2014 remains a concern for the company.
Additionally, the company is struggling with the effects of
customer loss and rising costs. Frontier's local and long distance
service revenue dropped during the first quarter as more users
migrated from the traditional landline service. Deteriorating
wireless backhaul business is expected to remain a headwind for
Frontier, given the fact that it has not invested heavily in the
same and is expected to have a negative revenue impact of $25-$30
million in 2014. We thus remain sidelined on the stock at present.
Key Picks from the Sector
Some notable stocks within this sector are
BT Group plc
). Both the stocks bear a Zacks Rank #2 (Buy).
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