Frontier Communications (OTC:FTR) will release its quarterly report on Monday, and investors have high hopes that the rural telecom company could finally have hit bottom and reached a sustainable level of profitability. In fact, in the wake of the company's recent deal with AT&T (NYSE:T), Frontier's stock has done much better than telecom peers Windstream (NASDAQ:WINMQ) and CenturyLink (NYSE:LUMN), although it remains to be seen whether Frontier will be able to take maximum advantage of the assets that it is buying.

Most investors discover Frontier Communications when they look for high-dividend stocks, as Frontier's yield is among the tops in the market. Yet longtime shareholders have seen firsthand the danger of high-yield dividend investing, as Frontier's share price has performed badly over the long run, and the company has slashed its dividend on two separate occasions. The question Frontier has to answer is whether the AT&T deal will produce stronger growth than did a similarly impressive purchase of assets from Verizon a few years ago. 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.

Source: Wikimedia Commons.

Stats on Frontier Communications

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$1.18 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can Frontier Communications earnings start growing again?
Analysts have held steady in recent months on their views for Frontier earnings, keeping both quarterly and full-year 2014 projections unchanged. The stock has also been largely flat, falling just 1% since mid-November.

Frontier's third-quarter report was relatively uninspiring, showing the continuing trends toward falling sales that it and peers CenturyLink and Windstream have shared for a long time. Year-over-year revenue at Frontier fell 5.3% during the quarter, with the legacy landline business continuing its steady decay even as the company fared well in attracting and retaining broadband Internet accounts. CEO Maggie Wilderotter said she expected Frontier to meet its previous guidance for the year, with its efforts to keep costs under control in order to offset cash flow challenges.

But Frontier got a shot in the arm when it announced in December that it would buy AT&T's landline and statewide fiber network assets in Connecticut for $2 billion. The deal gave AT&T cash to use to invest in its faster-growing wireless business, but Frontier stock soared because of the positive impact the Connecticut business will have on its cash flow.

Still, the big question for Frontier, as well as Windstream and CenturyLink, is the extent to which rural telecom companies can persuade customers to keep their existing services and expand to more profitable offerings such as video. One reason that's so important for Frontier is that it already had almost 80% of its operating earnings going toward interest repayments last quarter; with the AT&T deal adding more to the debt burden, Frontier will have to work hard to maintain its debt levels even in the current low-interest rate environment. If rates spike higher, they could eventually cause even bigger problems for Frontier.

In the Frontier earnings report, watch to see how the company discusses the AT&T Connecticut deal in the context of its overall business strategy. Receiving a juicy dividend is attractive, but shareholders will only appreciate it if the value of their stock doesn't drop at the same time.

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