Frontier Communications Corp. Earnings: Is Growth Sustainable?

The rural telecom specialist has seen its share price soar, but can a late-2013 acquisition drive long-term growth?

May 5, 2014 at 12:00PM

On Tuesday, Frontier Communications (NASDAQ:FTR) will release its quarterly report, and investors have been exceedingly optimistic about the rural telecom's prospects once it closes on its acquisition of one of AT&T's regional markets. Yet the bigger question Frontier faces is whether it can turn the short-term bump the acquisition will give it into a longer-term competitive advantage against Windstream (NASDAQ:WIN), CenturyLink (NYSE:CTL), and other players in the industry.

Frontier Communications offers the same phone and broadband Internet services that AT&T and other larger telecoms give their customers, but like Windstream and CenturyLink, Frontier focuses on less urban areas that aren't as well served by the bigger players in the industry. With fewer choices, Frontier's customers can be more loyal than those in urban areas, but competition from cable providers and other players poses a substantial threat, especially as rural customers get more comfortable relying solely on wireless phone service and give up their landlines. Let's take an early look at what's been happening with Frontier Communications over the past quarter and what we're likely to see in its report.

Ftr

Stats on Frontier Communications

Analyst EPS Estimate

$0.07

Change From Year-Ago EPS

40%

Revenue Estimate

$1.17 billion

Change From Year-Ago Revenue

(3.3%)

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Will Frontier earnings keep gaining ground?
Analysts have had mixed views on Frontier earnings in recent months. They've boosted their first-quarter estimates by a penny per share, but they've reduced their full-year 2014 projections by the same amount. The stock has soared, though, rising 26% since late January.

Frontier's fourth-quarter earnings report was a big contributor to bullishness in its stock. The company managed to raise its earnings by a penny per share from year-ago levels. Although revenue fell by about 4% year over year, that's not inconsistent with the general deterioration in the rural telecom's revenue figures over the longer term. Frontier Communications did a good job of replacing falling customer counts for landlines, adding 28,000 broadband customers during the quarter.

Ftr

Source: Chas Redmond, via Wikimedia Commons.

Still, the concern that many have about Frontier Communications is that falling revenue could eventually make it extremely difficult for the company to grow earnings. CenturyLink in particular has done a better job of keeping revenue up, and most investors expect Frontier Communications to have a hard time avoiding a drop in earnings as well. Other important metrics, such as switched-access minutes, have also declined at a faster rate than what CenturyLink has seen.

At the same time, Frontier Communications' free cash flow will suffer as a result of acquisition costs tied to the AT&T Connecticut buyout. If that happens, some investors fear that Frontier will have to cut its dividend for a third time in four years, although Windstream has thus far avoided a dividend cut despite arguably being just as extended financially. CenturyLink, by contrast, also cut its dividend, but its cash-flow picture looks a lot more attractive as a result of that voluntary reduction.

But Frontier has had some success with its broadband offerings. In March, the company presented at an industry conference and said that its low-cost broadband service had managed to retain customers at a 77% rate, with some customers choosing to upgrade to even faster speeds once they got a taste of Frontier's service. As Frontier gets new customers from the AT&T Connecticut acquisition, it will want to sell them similar broadband service in order to keep and build revenue.

In the Frontier Communications earnings report, watch to see how the acquisition is going, and be ready to compare Frontier's growth metrics against those of Windstream and CenturyLink once all three have reported. If Frontier can become less of a landline company and more of an Internet service provider, then it could eventually manage to grow even as its legacy business segments fades away.

Your cable company is scared, but you can get rich
You know cable's going away. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names.

Click here to add Frontier Communications to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Dan Caplinger has no position in any stocks mentioned, and neither does The Motley Fool. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers