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
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
FY 2009 |
Total No. of Wireline Customers (Millions) |
Debt to Capital Ratio |
||
---|---|---|---|---|
Frontier |
> 8.0 |
70% |
10% |
94% |
Qwest |
> 3.8 |
29% |
6% |
109% |
Verizon |
>15.5 |
35% |
7% |
42% |
Windstream |
>1.5 |
56% |
9% |
94% |
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.