Why Frontier Communications Is Worth a Closer Look

Once a virtually unknown company, Frontier Communications (NASDAQ: FTR  ) has earned the attention of investors because of its historically high dividend yields. Yet with a big plunge in its share price since early 2011, the stock serves as a painful example of how chasing yield can burn you.

Putting the past aside, though, the big question investors have to answer now is whether Frontier has what it takes to turn things around and start making money for investors. I address that and more in my premium report on Frontier Communications. Below is an excerpt, which describes the opportunity that the company has in competing against fellow rural telecoms Windstream (NASDAQ: WIN  ) and CenturyLink  (NYSE: CTL  ) .

The opportunity for Frontier
Frontier serves as a great reminder that promising companies often do rather dull things. For years, Frontier has brought landline telephone service to customers in rural areas around the nation, as well as offering cable television and broadband Internet.

That may not sound like a glamorous business, especially compared to larger telecom companies that have tapped into state-of-the-art wireless networks and concentrate on selling the latest smartphones and serving first-adopters at premium prices. What you have to keep in mind, though, is that in many rural areas, the primary provider has a huge advantage over any competitors -- if there even are any. That explains Frontier's historically high customer retention and low churn rates.

But two years ago, Frontier transformed its business forever. The company closed on a deal with Verizon (NYSE: VZ  ) in which Frontier paid $8.5 billion for a huge swath of rural Verizon customers across 14 states, giving Frontier access to 4.8 million local access accounts, 2.2 million long-distance customers, and a million high-speed Internet customers. The transaction tripled Frontier's size, but it also left Frontier with a lot more debt on its balance sheet.

After the Verizon transaction, Frontier's revenue immediately soared. But the company's net income never followed suit. Even worse, sales have slowly but surely eroded over the past eight quarters, while the huge increase in the company's share count due to the Verizon deal has left the company with greatly reduced earnings per share -- and has forced the company to cut its dividend not once but twice. That in turn has sent shares plunging.

Learn more
That was just the first part of The Motley Fool's premium research report on Frontier Communications. At this point, Frontier hasn't been able to capitalize on the opportunity that its Verizon purchase gave it, but it's still looking for ways to get the most from its newly expanded customer base by encouraging other sources of revenue.

To find out more about the rural telecom, including whether Frontier is a buy right now, you'll want to read the full report, which also includes regular updates as events occur. Click here now and get your report today.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

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.

Be the first one to comment on this article.

DocumentId: 2161915, ~/Articles/ArticleHandler.aspx, 7/31/2014 10:31:35 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

TREND TRACKER: Get Rich When the Web Goes Dark

It's time to say "goodbye" to your Internet! One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism… The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Big money is already on the move. Don't be too late to the party – find out the 1 stock to own when the Web goes dark.


Advertisement