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Frontier Communications Corporation (FTR - Analyst Report) is slated to release its third quarter 2012 results on Tuesday, November 6. The current Zacks Consensus Estimate for third quarter earnings is pegged at 7 cents per share, representing an annualized growth of 15.9%.

Second-Quarter Flashback

Frontier’s second quarter adjusted earnings of 8 cents surpassed the Zacks Consensus Estimate of 4 cents and increased 33.3% from 6 cents earned in the year-ago quarter.

Revenue of $1,258.8 million surpassed the Zacks Consensus Estimate of $1,247 million but dropped 4.8% from $1,322.3 million in the year-ago quarter. The decline was due to lower residential and business customers, switched access, data services and video revenue.

Agreement of Estimate Revisions

Estimate revisions for the company mostly show a downward trend.

For the third quarter, out of 12 estimates none were revised upward or downward in the last 7 days. In the last 30 days, one upward revision took place while three estimates were revised downward. 

For 2012, out of 11 estimates, no upward or downward revisions were made in the last 7 days. Over the last 30 days, none were revised positively but three estimates were revised negatively.

For 2013, out of 14 estimates no change in estimate revision took place in the last 7 days. Over the last 30 days, one positive revision was made against three negative revisions.

Frontier remains significantly challenged by the fragile economic condition in its service territories and competes with the loss of legacy fixed telephony business to wireless and other competitive offerings. The persistent decline in access lines continues to tighten local service revenue, which accounts for most of Frontier’s overall revenues.

Despite growth of broadband customers and continuous dividend payments, we remain apprehensive about the company given its highly leveraged balance sheet and deteriorating sales. We expect revenues to rebound based on the integration of Verizon lines in nine states. Given the high degree of competition among cable companies, there remains a looming uncertainty over Frontier’s ability to win back market share. 

Magnitude of Estimate Revisions

Over the last 7 and 30 days, the magnitude of the third quarter estimate revisions remained unchanged at 7 cents.

Similarly, for fiscal 2012, the Zacks Consensus Estimate remained static at 26 cents in the last 7 and 30 days.

For fiscal 2013, the Zacks Consensus Estimate remained pegged at 27 cents, unchanged over the last 7 days. However, the estimate took a penny’s dip from 28 cents over the last 30 days. 

Earnings Surprises

The company has delivered positive earnings surprises over the trailing four quarters with an average beat of 41.11%.

Our Recommendation

We believe Frontier is well positioned to benefit from its profitability enhancement through lucrative deals, cash flow management and customer retention and wins, new product deployments as well as broadband expansion. However, intense competition from its peers like Windstream Corporation (WIN - Analyst Report), a highly leveraged balance sheet and regulatory pressure may limit the earnings potential of the company.

We maintain our long-term Neutral recommendation supported by a Zacks #3 Rank implying short-term (1-3 months) Hold rating.

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