On April 4, 2014, we issued an updated research report on Frontier Communications Corporation ( FTR ). The company's fourth quarter 2013 revenues and earnings were above the Zacks Consensus Estimate but below the year-ago level. Currently, the Zacks Consensus Estimate for the first quarter of 2014 is pegged at 6 cents, representing an annualized growth rate of 22.2%.
Frontier focuses on generating additional revenues through customer retention and market share gains, new product deployment, broadband expansion as well as improved sales and marketing initiatives. We believe that the company is on track to achieve its growth goal and expect continued focus on cost control and efficient practices to improve margins. We also believe the company's efforts to streamline work force, restructure operational processes and eliminate redundancies for further cost containment bode well for earnings growth.
The company continues to offer attractive packages of value-added services to local access line customers. Its bundled services include High-Speed Internet (HSI), unlimited long distance calling, enhanced telephony features, and video offerings (direct broadcast satellite services from DIRECTV and the DISH Network, FiOS services in certain states and over-the-top video on myfitv.com).
In addition, the company remains focused on new product development including Hughes Satellite Broadband, Residential VoIP (voice over Internet protocol) and Commercial Data Products. Further, the recent rise in cable tariffs has made Frontier's services even more competitive. Meanwhile, the company expects backhaul transformation to be completed in the first half of 2014 and provide a stable revenue opportunity.
However, Frontier remains significantly challenged by slow economic recovery in its service territories and competes with the loss of legacy fixed telephony business to wireless and other offerings. Approximately 65% of Frontier's access lines are exposed to cable voice service offerings. The persistent decline in access lines continues to tighten local service revenues, which account for most of Frontier's overall revenues.
Further, in 2014, the company expects an additional operating expense of $140-$170 million and capital expenditure of $85-$105 million in relation to its acquisition and integration activities of AT&T Inc. 's ( T ) Connecticut business. In addition, cash tax expense is estimated in the range of $130-$160 million. We believe that these cost headwinds will weigh on the near-term financial performance of the company.
Frontier currently retains a Zacks Rank #3 (Hold).
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