Regional telcos have largely been a bag of hurt for investors, and Frontier Communications (NASDAQ:FTR) has gone along for the downhill ride. Shares of the incumbent local exchange carrier have plummeted more than 30% this year, and nearly 90% since the beginning of last year.
Frontier isn't a tenth of the company it was at the end of 2016, but crumbling fundamentals for some of the weaker players in this niche and Frontier's cash-preserving move of suspending its once generous dividends in February are weighing on the stock. Frontier Communications is out of favor, but it doesn't always have to stay that way.
How these telecoms stack up
Frontier Communications isn't standing still. It turned heads three years ago, when it acquired Verizon's wireline business in three states for $10.5 billion, a move that roughly doubled the size of the company. However, the trend hasn't been Frontier's friend. Folks keep cutting the cord. If they're not kissing legacy wireless networks goodbye, then they're being wooed by larger players offering more advanced platforms.
Residential and corporate customers are shrinking with every passing quarter. We've seen the total client count contract from 5.058 million to 4.667 million over the past year. Frontier has now delivered 14 consecutive quarterly deficits, and there's little reason to expect that unfortunate streak to end anytime soon.
Revenue has declined for five straight quarters, and before that the growth wasn't organic. The one lever Frontier can pull is cutting costs, and while it may never live up to its original goal of $1.6 billion in annualized cost synergies, it did complete its plan to shave $350 million in annual overhead. It's eyeing other enhancements that could lift EBITDA by $500 million a year by 2020.
The next big test comes next week, when Frontier reports its third-quarter results. Wall Street's bracing for the two unfortunate streaks at the opposite ends of its income statement to continue, with revenue declining 5.6% to hit $2.13 billion and Frontier checking in with its 15th consecutive quarterly loss in a row.
It's hard to cut costs fast enough when the ceiling is dropping. Frontier is targeting $3.6 billion in adjusted EBITDA this year, less than the $3.7 billion it delivered a year earlier. Slashing capital expenditures is helping on the operating free cash flow front, but the uptick will be temporary if it can't find a way to turn its business around.
The stock's drop has outrun the fade in its fundamentals, but the risks here have never been higher. Frontier no longer offers a dividend to satisfy income investors, and there's little to excite growth investors. Frontier won't always move lower in the short run, but its fate is undeniable in the long run.