When it comes to telecom stocks, Frontier Communications (FTR) sports what looks like an attractive price. It's just $0.59 per share and hovering near a 52-week low compared to the $38.55 of competitor AT&T (T 0.75%), as of this writing.
Pit these two telecommunications companies head-to-head and it seems, on the surface, that Frontier's price advantage makes it the better buy. But when looking at the entirety of both companies, the reason behind the price for each stock becomes readily apparent, and the clear investment choice is AT&T.
Why Frontier loses
Frontier is a company in decline. Its decision to buy Verizon's wireline business in three states back in 2016 has proven disastrous.
Revenue has dropped every quarter for the past year. In its third-quarter earnings report, Frontier experienced a 6.1% year-over-year drop in revenue. The company also witnessed its largest customer churn in the third quarter, with a clear trend of customer defections steadily growing since the first quarter of 2018.
Moreover, in the most recent conference call with analysts, Frontier's financials are not pretty. The company reported a loss in 2018 and has reported losses in the three quarters of 2019 it has so far reported. At the end of the third quarter, its total assets stood at $17.6 billion, while total liabilities were $21.7 billion. Also, Frontier was once a dividend-paying stock, but suspended its dividend in early 2018.
Frontier is selling operations and assets in Washington, Oregon, Idaho, and Montana. Management has not articulated a turnaround plan.
Why AT&T wins
On the flip side, AT&T's strategic moves chart a growth path for the company. It purchased Time Warner, Inc. in 2018, allowing the telecom company to add the film and television libraries of Warner Brothers, HBO, and Turner to its arsenal. This set up the company's plan to launch its own streaming entertainment network, capitalizing on the cord-cutting trend.
The strategy complements the move to an improved 5G wireless network to unlock faster mobile internet speeds. The faster speeds make a streaming service more attractive.
In addition to AT&T's growth strategies, the company is profitable. In 2018, it delivered over $19 billion in net income and has already exceeded $10 billion in net income through the third quarter of 2019.
And while Frontier's third-quarter total liabilities overshadowed its total assets, the opposite is true for AT&T. The company's assets of nearly $549 billion more than cover its $354.5 billion in total liabilities.
These qualities are incentive enough to see AT&T as a compelling investment, but there's more. The company is also a Dividend Aristocrat and in December announced that its quarterly dividend was increasing for the 36th consecutive year. The stock is currently delivering more than a 5% yield.
From stronger financials to a strategy for growth, AT&T possesses the attributes of an attractive investment, while Frontier Communications does not.
Certainly, some concern exists regarding how well AT&T will fare in the entertainment business. It's an entirely new industry for the company, and the cost of producing original streaming content has been increasing. Although AT&T has worked to reduce its liabilities, the addition of new streaming services won't help.
Still, between this battle, it's a no contest. AT&T clearly comes out on top.