Macquarie Sees 'Fat Pitch' Opportunity in Frontier Communications (FTR)

Macquarie analyst Kevin Smithen reiterated an Outperform rating and $7.75 price target on Frontier Communications (NASDAQ: FTR), saying they are expecting a big rally after the convertible and equity deals are priced.

This morning, FTR announced a $1.75bln convert deal and a $750m common stock offering and published an 8K with the financials of the assets they are acquiring from VZ.

The analyst commented, "We think the right way to think about the deal for FTR is to take the $1.6bln of annualized reported EBITDA and assume that drops at 2+% per year and then add-back some portion of the $2.4bln in annualized allocated costs that FTR will be able to eliminate over the next three years. Our $2.0bln pro forma 2018 EBITDA contribution also appears conservative in this context. We will update our accretion and dividend coverage models shortly once we get a better sense on deal pricings and have a chance to fully review."

He added, "Every once in a while, market conditions or deal dynamics create a ‘fat pitch’ opportunity for investors to make outsized returns with an asymmetric risk/reward. We see FTR as such an opportunity right now and would expect very strong demand for both the equity and convertible offerings. While we continue to recommend Crown Castle International (CCI US, $82.26, Outperform, TP: $99.00) shares here as our top pick, we believe FTR shares are even more attractive on a tactical basis. For yield and telecom investors, we believe Christmas came early this year and Santa delivered a nice gift-wrapped FTR."

For an analyst ratings summary and ratings history on Frontier Communications click here. For more ratings news on Frontier Communications click here.

Shares of Frontier Communications closed at $5.08 yesterday.

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