MoffettNathanson Downgrades Frontier Communications (FYBR) to Neutral
MoffettNathanson analyst Nicholas R. Del Deo downgraded Frontier Communications (NASDAQ: FYBR) from Buy to Neutral with a price target of $38.50 (from $30.00).
The analyst comments "This morning, Verizon announced that it had agreed to acquire Frontier for $38.50 in cash per share, formalizing yesterday’s report from the Wall Street Journal that a deal was imminent. This announcement prompts us to downgrade Frontier from Buy to Neutral, while raising our target price to equal the deal price. Earlier this morning, we published our initial take on the proposed transaction, and we don’t have a heck of a lot to add to it. But there are a few additional points worth examining, since we now have additional information on the transaction. First, Verizon’s planned synergies and the breakup fees would seem to make a follow-on bid from T-Mobile even less likely than we outlined in this morning’s report. TMobile simply would not be in a position to realize synergies of the magnitude that Verizon can, and it would need to compensate Frontier for the breakup fee and pay a premium on top. The hurdles would be high. Second, Verizon is expecting cost synergies of at least $500M annually by year three. Ignoring (undisclosed) costs to achieve and potential regulatory concessions, this lowers the effective EV to EBITDA multiple from ~9.1x to ~7.4x. About half of the expected synergies stem from network savings, and the rest from go-to-market savings, duplicative overhead, and other sources. Third, Frontier could owe Verizon $320M, and Verizon could owe Frontier $590M, in breakup fees under certain circumstances. While not outsized, they aren’t chump change, either (about $1.30 and $2.40 per Frontier share, respectively). Fourth, the deal is expected to close in 18 months, subject to customary regulatory conditions and a vote by Frontier shareholders. We look forward to seeing the proxy, with its background to the deal and long-term projections."
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 $38.68 yesterday.