By golly, rural telco FairPoint Communications (NYSE:FRP) just can't catch a break. After many costly delays in cutting over from Verizon's (NYSE:VZ) network infrastructure to its own system, FairPoint finally appears poised to execute. But instead of a pregame cheer, the company recently caught a hairy eyeball from ratings agency Fitch Ratings.

Specifically, Fitch tempered its outlook and also cut ratings on certain tranches of FairPoint's debt. Minor quibbles aside, I regard Fitch's move as pointedly fair.

FairPoint's debt load -- largely a result of its purchase of Verizon's northern New England territories in March 2008 -- is indeed worrisome. Furthermore, in 2008 the company was operationally hamstrung. Because FairPoint wasn't able to make the transition to its own network architecture during September 2008, its cash flow was affected as follows:

  • The company had to make three additional monthly payments to Verizon totaling roughly $49 million.
  • FairPoint presumably has had to spend more than anticipated to get its own network up and running.
  • The ongoing transition has delayed the more aggressive marketing FairPoint could use to increase revenue.

Clearly, not the kind of triple play that investors like to see.

But assuming that FairPoint can put the past behind it and take off on its own bandwidth at the end of January (an event that the Fitch report questions), can investors hope for a better stock price? Compared with its peers on measures not including profit margins, the risks appear to be amply priced in.

Company

Debt to Equity

Price to Sales

FairPoint Communications

11.78

0.21

Windstream (NYSE:WIN)

9.98

1.25

Frontier Communications

(NYSE:FTR)

6.60

1.18

CenturyTel (NYSE:CTL)

1.05

1.08

All figures from Yahoo! Finance as of Jan. 28, 2009.

Going forward, FairPoint needs to demonstrate that its operating model can deliver profitability and reduced debt. If, in the process, its price-to-sales valuation expands to even half that of its peers, we are looking at a big jump in the stock price. The downside is that the company could cut, or temporarily suspend, its hefty dividend along the way.

All factors considered, a new or additional investment at this juncture is an aggressive move and should be executed with care. But for existing shareholders who are suffering a bad case of jitters, I submit that selling now would be tantamount to bailing on your box seat because your team looked bad during warm-ups. Rather, it might be best to stay put, keep a close eye on it, and order a tasty beverage.

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Fool contributor Mike Pienciak owns shares of FairPoint. Windstream is a Motley Fool Income Investor pick. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool is investors writing for investors.