Frontier (FTR) Reduced Level of Cash Tax Makes Shares More Attractive

Yesterday, Frontier Communications (Nasdaq: FTR) filed an 8-K providing updated guidance on 3Q12 storm impacts, 3Q intercarrier compensation reform impact, 2012 pension contribution, and 2013 cash taxes. In the view of Nomura Securities, the most meaningful of these was 2013 cash taxes, which are now expected to be $125mn to $150mn, $120mn lower than Nomura’s prior forecast of $257mn.

With a higher 2013 FCF, Nomura views the shares as incrementally more attractive versus peers. As a result they raised their price target to $5.50 (from $5.00).

“The reduced level of cash taxes should be viewed positively, with the benefit likely targeting debt reduction and providing further support to the dividend,” said analyst Mike McCormack.

With lower cash taxes adding incremental support, Nomura does not believe the 2x price to FCF discount versus peer valuations is warranted, and continue to find FTR shares one of the most attractive opportunities in the space.

Nomura has a Buy rating on Frontier Communications.

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 $4.79 yesterday.

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