FRONTIER COMMUNICATIONS CORP. $5.95 (Nasdaq symbol FTR; Income Portfolio, Utilities sector; Shares outstanding: 1.0 billion; Market cap: $6.0 billion; Price-to-sales ratio: 1.2; Dividend yield: 6.7%; TSINetwork Rating: Average; www.frontier.com) sells phone, Internet and TV services to 3.1 million customers in 27 states.
The company recently agreed to pay $2.0 billion for AT&T’s traditional phone business in Connecticut. These operations sell phone, high-speed Internet and digital TV service to over 900,000 customers.
Frontier expects to close the deal by the end of 2014. The move should increase its annual revenue by 26% and its operating earnings by 18%.
Excluding acquisition-related costs, Frontier’s earnings fell 0.8% in the three months ended March 31, 2014, to $48.4 million from $48.8 million a year earlier. Per-share earnings were unchanged at $0.05. Revenue declined 4.3%, to $1.15 billion from $1.21 billion, as lower telephone revenue offset higher sales of Internet services.
The company will have to borrow most of the funds it needs for this purchase, which will raise its already high debt load; its long-term debt of $7.8 billion is equal to 1.3 times its market cap. Still, the extra cash flow from the AT&T assets should let Frontier maintain its $0.40-a-share dividend, which yields 6.7%.
Frontier is a hold.
