Will Frontier Communications Ever Grow Again?

Next Monday, Frontier Communications (FTR) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. 

Frontier Communications has been a favorite among dividend investors for a long time, as it continues to sport a dividend yield near 10%. But the company's business has been contracting, and that troubling trend shows no signs of slowing anytime soon. 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.

Stats on Frontier Communications

Source: Yahoo! Finance.

Can Frontier Communications finally connect with growth this quarter?
Analysts have gotten a bit more pessimistic about the earnings prospects for Frontier in recent months, having cut both first-quarter and full-year 2013 EPS estimates by $0.01. The stock has performed much worse than those small cuts would suggest, with shares down more than 6% since late January even including the impact of Frontier's dividend.

The biggest news affecting Frontier during the past quarter didn't actually happen to Frontier, as rival CenturyLink (LUMN -5.15%) slashed its dividend by more than 25% back in February. Interestingly, though, CenturyLink's free cash flow was more than sufficient to pay the dividend had it chosen to. Instead, CenturyLink wanted to reallocate resources toward share buybacks, which it apparently judged was a better use of capital than simply paying out spare cash in dividends. Nevertheless, Frontier and Windstream declined with CenturyLink's share price after the cut.

Unfortunately, Frontier doesn't have the same growth opportunities that CenturyLink has. Even as CenturyLink has tried to move into managed hosting and other areas, Frontier has stuck with the less exciting strategy of pushing its business and high-margin broadband services to a customer base that has thus far proven unwilling to adopt them in sufficient numbers to produce strong growth.

In March, Frontier got the bad news that Fitch Ratings had changed its outlook on the company's debt to negative. Anticipating lower expectations for sales growth, Fitch said it would downgrade Frontier's BB+ junk bond rating further if leverage levels increase or if the company can't grow sales of its business and data services units.

In Frontier's quarterly report, look for signs that the company has come up with a new strategy to find growth. Sticking with its core business simply hasn't produced the results investors want to see, and Frontier needs to go back to the drawing board in order to compete in a rapidly evolving industry.

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