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Frontier Communications Poised for Growth, Risks Stay

On Jun 3, we issued an updated research report on Frontier Communications CorporationFTR .

The company reported strong financial results in the first quarter of 2016. Contrary to the Zacks Consensus Estimate of a net loss, the company posted net income in the reported quarter. Moreover, the top line outpaced the consensus mark.

Positives

Frontier Communications recently completed the purchase of Verizon Communications Inc.'s VZ wireline assets for $10.5 billion in California, Florida and Texas. We believe that the Verizon deal will drive revenues and free cash flow at Frontier Communications and also help the company retain its dividend sustainability.

We are also optimistic about Frontier Communications' collaborations with other companies to offer differentiated products. In this regard, the launch of its OTT (over the top) services called 'Freedom TV' to cater to millennials' preferences should result in increased market share.

Meanwhile, management foresees strong broadband subscriber growth in 2016 and expects growth to accelerate on the back of new marketing programs. Evidently, in the first quarter, the company added 24,600 broadband customers.

Moreover, Frontier Communications launched its latest line of services branded as 'Vantage' - a premium digital platform to deliver HD TV, ultra fast broadband and enhanced VoIP services. The company aims to introduce Vantage TV to more than 3 million households over the next 3 to 4 years. We believe that the new Vantage line, along with its existing OTT and FiOS services, will help Frontier Communications grow its footprint substantially.

Frontier Communications is also leaving no stone unturned to derive benefits from the growing Business Service Segment. Particularly, the company has been targeting the Small and Medium Businesses (SMBs). It has been enhancing its Ethernet capabilities lately and eyeing the retention of SMB customers with attractive plans.

Risks

However, Frontier Communications is significantly challenged by slow economic recovery in its service territories and is striving to put a check on the loss of legacy fixed telephony business to wireless and other offerings. Further, potential decline in wireless backhaul and residential revenues add to the company's concerns.

Moreover, Frontier Communications exited the first quarter of 2016 with $500 million of cash and cash equivalents compared with $936 million at 2015-end. Total debt at the end of the reported quarter was $15,866 million. Such a low cash balance and a highly leveraged balance sheet raise apprehension.

Zacks Rank & Stocks to Consider

Frontier Communications currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Chunghwa Telecom Co., Ltd. CHT and TELUS Corporation TU . Both the stocks carry a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

TELUS CORP (TU): Free Stock Analysis Report

CHUNGHWA TELECM (CHT): Free Stock Analysis Report

VERIZON COMM (VZ): Free Stock Analysis Report

FRONTIER COMMUN (FTR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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