Fontier Communications (FTR) Provides Investors with a Solid 'Triple Play' - Barron's
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Fontier Communications (NYSE: FTR) is a company that is offering several attractive features for investors, according to a recent Barron's article. The stock offers income plus upside potential, at a value price. Shares of FTR are up 1.72% in mid-afternoon trading today.
Over the summer, FTR became the largest telecommunications company with the acquisition of 4.8 million landlines from Verizon Communications (NYSE: VZ), at a price of $8.6 billion.
Barron's notes that many have kept the stock aboard due to its intoxicating 9.9% dividend yield. However, that stock is notably flat YTD and down 45% over the last five years.
The company's payout ratio (how much they're paying out to how much they're earning) is at 66.67% for FY11, and 50% for FY10. The higher the ratio is generally a bad thing for burgeoning companies, but less so with established companies. CFO Don Shassian notes that one of their objectives is to get the ratio "to 50% or below."
Although a higher dividend payout could be a signal of a company in trouble, Barron's notes that FTRs free cash flow (FCF) is strong, and is stable enough to sustain the dividend over the long run. Notably, as consumers begin to disconnect their phone line, current telecom models are enough to generate cash for years to come; five of the top eight dividend yields in the S&P are from telecom stocks.
Although the Verizon assets are underperforming Frontiers own assets (11% annual line losses versus 6% annual losses), the rate of revenue decline has slowed, which the company attributes to local engagement of customers. They don't have a national marketing strategy or pricing. Rather, they look to connect with people on a regional and local basis, which has helped them to stem losses.
Expansion into broadband would be another opportunity for FTR. Only 64% of Verizon's lines carry broadband, compared to 92% for Frontiers. FTR is looking to bring broadband to 85% of its new Verizon customers by 2013, which is a number that can be achieved without government aid.
Although not much detail about the Verizon acquisition has come from FTR, they promise to provide more detail this fall.
Shares, which are trading at about 6.5x FY11 FCF, come in below the telecom average of a 7.5x multiple for FY11 FCF. An analyst at Raymond James thinks a better multiple would be 8.5x.
The stock is also currently trading at a forward P/E of 70x FY11 EPS estimates, compared to 10.7x for AT&T (NYSE: T), 11.2x for CenturyTel (NYSE: CTL), 12.8x for Verizon, and 14.5x for Qwest Communications (NYSE: Q).
Over the summer, FTR became the largest telecommunications company with the acquisition of 4.8 million landlines from Verizon Communications (NYSE: VZ), at a price of $8.6 billion.
Barron's notes that many have kept the stock aboard due to its intoxicating 9.9% dividend yield. However, that stock is notably flat YTD and down 45% over the last five years.
The company's payout ratio (how much they're paying out to how much they're earning) is at 66.67% for FY11, and 50% for FY10. The higher the ratio is generally a bad thing for burgeoning companies, but less so with established companies. CFO Don Shassian notes that one of their objectives is to get the ratio "to 50% or below."
Although a higher dividend payout could be a signal of a company in trouble, Barron's notes that FTRs free cash flow (FCF) is strong, and is stable enough to sustain the dividend over the long run. Notably, as consumers begin to disconnect their phone line, current telecom models are enough to generate cash for years to come; five of the top eight dividend yields in the S&P are from telecom stocks.
Although the Verizon assets are underperforming Frontiers own assets (11% annual line losses versus 6% annual losses), the rate of revenue decline has slowed, which the company attributes to local engagement of customers. They don't have a national marketing strategy or pricing. Rather, they look to connect with people on a regional and local basis, which has helped them to stem losses.
Expansion into broadband would be another opportunity for FTR. Only 64% of Verizon's lines carry broadband, compared to 92% for Frontiers. FTR is looking to bring broadband to 85% of its new Verizon customers by 2013, which is a number that can be achieved without government aid.
Although not much detail about the Verizon acquisition has come from FTR, they promise to provide more detail this fall.
Shares, which are trading at about 6.5x FY11 FCF, come in below the telecom average of a 7.5x multiple for FY11 FCF. An analyst at Raymond James thinks a better multiple would be 8.5x.
The stock is also currently trading at a forward P/E of 70x FY11 EPS estimates, compared to 10.7x for AT&T (NYSE: T), 11.2x for CenturyTel (NYSE: CTL), 12.8x for Verizon, and 14.5x for Qwest Communications (NYSE: Q).
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