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Stock Cheat Sheet: Frontier Communications

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Get to know a company in less than five minutes: That's what a Motley Fool Cheat Sheet is all about. If you're new to Frontier Communications (NYSE: FTR  ) , consider this your Foolish way to get introduced and be in the know.

What it does
Frontier is small-town USA's leading telecom company. It provides wired telephone, cable television, and broadband Internet services to millions of rural and small/medium-sized-town customers. The company does not provide mobile phone service. Frontier runs a pretty tight operation, with average revenue per customer around $80.74 and less than 1.5% monthly churn.

How it stacks up
Frontier recently closed on the acquisition of a large chunk of Verizon's (NYSE: VZ  ) rural wireline assets. The purchase has more than tripled Frontier's customer base and really secures its position as the largest (and most attractively yielding) rural telecom provider in the United States. On the other hand, it will add heavily to the company's debt load.

FY 2009

Total No. of Wireline Customers (Millions)

FCF Payout Ratio

Dividend Yield

Debt to Capital Ratio


> 8.0




Qwest (NYSE: Q  )

> 3.8









Windstream (Nasdaq: WIN  )





What to watch out for
The aforementioned Verizon "acquisition" was really somewhat of a reverse acquisition. Frontier issued Verizon shareholders $5.3 billion in common stock, hugely diluting its existing shareholders. While the long-term prospects of the deal seem to favor Frontier, management's stewardship of shareholder interests really gets called into question with a move like this. On the business side of things, Frontier's biggest revenue segment is still wired telephone service, a technology that is quickly being displaced by mobile solutions. How these two risks play out still remains to be seen.

Why you should care
Five-year treasury bonds are currently yielding 1.7%. Corporate AAAs are yielding 2.1%. Even with the recent dividend cut, Frontier is still returning to its shareholders 10% a year. The company isn't a no-brainer -- it will owe almost $8 billion in total debt -- but if the acquisition can increase its annual free cash flow of about $400 million to $500 million to $1.4 billion to $1.7 billion, this dividend may no longer be on such shaky footing.

Fool analyst Sean Sun does not own any shares in the companies mentioned. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 25, 2010, at 12:32 AM, khemprof wrote:

    I look for Frontier Communications to get all of the problems resolved in the Verizon acquisition. This may take some time as the company is now 3 times its original size, but with the increased capacity, is increased revenue. Allowing for repairing Verizon's neglect, this revenue will help stabilize Frontier's network and bring greater service to areas that either didn't have or were undeserved before. The company stock has been diluted by the Verizon acquisition, but with good management and prudent use of revenues, Frontier could be a buy to $10 at which point a thorough look into the technology would be justifiable. There is current down pressure on the stock is due to the acquisition, but once the dust is settled the pivot points will not matter. $7.19/ share is the closest pivot to the current price, but look for pivot points to be on the up turn, meaning going higher. If the economy strengthens, Frontier will be a strong buy.

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