Frontier Communications is Aiming for Greener Pastures

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Frontier Communications (NASDAQ: FTR) provides communication services to both the business sector and the residential sector. It offers a range of products such as televisions, several voice services, Internet, as well as data services. The company operates in small- and medium-sized towns and cities in the United States and serves over 5 million phone lines across 27 states. Furthermore, it has also supplied Internet access to over 1.8 million customers in America alone as of December 2011.

The company was also successful in earning a net profit of 5.72% up to September of this year. In 2009, Frontier Communications collaborated with Verizon (NYSE: VZ) and tripled its size by acquiring over 4.8 million access lines. Dividend investors have their eyes on Frontier, as it has managed to surpass the dividend yield provided by another high yielder peer, CenturyLink (NYSE: CTL).

Future Prospects

After its persistent decline in revenue, cash flows, and operating income, the company has announced an agreement with Hughes in an attempt to provide broadband satellite services. While this is considered to be a pivotal moment for the company, it added 402 workers to its payrolls, even though it incurred a decline in revenues. However, the future is not necessarily bleak, as Frontier improved its earnings this year, even though there has been a decline in wireless access lines. Frontier also reported a cash flow of $215 million in Q3 2012.

Frontier’s situation is gradually improving, as it has paid back debts and announced a dividend payout ratio of 40% for the first nine months of the year. Q3 2012 has been positive for the company, as it reported revenue of $1.25 billion, while earning an operating income of $275.2 million. However, it should be noted that while the company has adopted a long-term strategy, due to its aggressive acquisition strategy, integration, and restructuring costs, the company has faced a cut in dividends.

Frontier Vs. the Rest:

The table below provides a detailed statistical summary of Frontier Communication and its leading competitors AT&T (NYSE: T) and Verizon. 

 

Frontier Communication

Verizon Communications

AT&T

Market Cap

4.6 bil$

$122.4 bil

$189.7 bil

Trailing P/E

30.1

39.8

44.6

 

P/B Ratio

1.1

3.4

1.9

Earnings Growth

-35.9

-27.8

-32.7

 

Dividend Yield

8.55

4.53

5.23

Debt/Equity

1.9

1.2

 

0.6

 

Return on Equity

3.4

8.0

4.1

As the table illustrates, the standout feature of this three-way comparison is Frontier’s dividend yield. The higher dividend yield is almost double what its competitors are managing to provide investors. While firms in the communications industry can be considered to be dividend stocks, Frontier clearly leads the way in providing investors the best bang for their buck. Frontier and Verizon have alarming levels of debt, however. Having a debt ratio above 1 suggests that the company has more debt that assets at hand, which can prove to be dangerous for the company in the long term. AT&T clearly outperforms the other two competitors in this regard.

Foolish Summary

The communications industry is apparently following a downward trend regarding EPS growth. With negative figures for the three-year averages of all three companies, it is safe to assume that investors will not be greatly rewarded with regards to earnings. The company has experienced a recent decline in revenues; however, all of that is in the past. With the introduction of Frontier Broadband, the company looks to be moving forward towards a new dawn.


ecofinstat has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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