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Why Is Frontier Communications (FTR) Down 32.4% Since the Last Earnings Report?

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It has been about a month since the last earnings report for Frontier Communications Corporation . Shares have lost about 32.4% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Frontier Communications Fourth Quarter 2016 Earnings

On a GAAP basis, net loss in the reported quarter was $133 million or a loss of $0.12 per share compared with a net loss of $156 million or $0.14 per share in the prior-year quarter. However, quarterly adjusted (excluding special items) loss per share was $0.04 ,a penny higher than the Zacks Consensus Estimate.

Total revenues increased a whopping 70.5% year over year to $2,409 million. The significant jump in revenues can primarily be attributable to the acquisition of certain wireline assets from Verizon Communications. However, the figure lagged the ZacksConsensus Estimate of $2,500.3 million.

Segment-wise, Customer revenue totaled $2,210 million, up a substantial 83.1% year over year while Switched access and subsidy revenues were $199 million, down3.4% year over year. Within the Customer segment, voice services revenues totaled $774 million, climbing 60.6%, Data and Internet services revenues came in at $1,013 million, advancing 72%, video revenues were $365 million, soaring an astounding 414.1% and Other revenues totaled $58 million, down10.8%. Category-wise Residential revenues were $1,196 million, upa massive 101.3% while Business revenues came in at $1,014 million, up 65.4%.

Operating income in the fourth quarter increased 40.1% year-over-year to $255 million. Quarterly operating expenses were $2,154 million, rising 75% year over year. Quarterly adjusted EBITDA was $966 million, up a considerable 61% year over year. However, adjusted EBITDA margin was 40% compared with 42.5% in the prior-year quarter.

Cash Flow

In the fourth quarter of 2016, Frontier Communications generated $714 million of cash from operations compared with $341 million in the prior-year quarter. Free cash flow in the reported quarter was $316million compared with $243 million in the year-ago quarter.

Liquidity

Frontier Communications exited 2016 with $522 million of cash and cash equivalents compared with $936 million at 2015-end. Total debt at the end of 2016 was $17,923 million compared with $15,892 million at the end of 2015. At 2016-end, the debt-to-capitalization ratio was 0.79compared with 0.80 at the end of 2015.

Subscriber Statistics

As of Dec 31, 2016, the number of residential customers decreased 2.9% sequentially to 4,891,000. The average monthly residential revenue per customer was $80.33, down2.5% sequentially. Residential customer monthly churn was 2.08%,remains flat sequentially. Business customers decreased 2.7%,sequentially to 502,000. The average monthly business revenue per customer was $665.04, down 0.05% sequentially. Frontier Communications had 4,271,000 high-speed broadband subscribers, down 2.1% sequentially and 1,419,000 video customers, down 5.6% sequentially.

Outlook

For 2017, Frontier Communications expects adjusted free cash flow in the range of $800to $1,000 million. Capital expenditures will be in the $1,000to $1,250 million range. Cash taxes will be $0 to $50 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 116.7% due to these changes.

VGM Scores

At this time, Frontier Communications' stock has an average Growth Score of 'C', however its Momentum is doing a bit better with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for momentum and to a lesser degree growth.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.

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