Monday, analysts at TD Cowen adjusted their stance on Frontier Communications (OTC:FTRCQ) (NASDAQ:FYBR), shifting from a Buy to a Hold rating and setting a new price target of $38.50, a slight decrease from the previous $39.00. The revision comes as Frontier is set to be acquired by Verizon Communications Inc (NYSE:VZ). at a purchase price of $38.50 per share. This acquisition price is approximately 8 times Frontier's estimated EBITDA for 2024.
The decision to downgrade the telecommunications company was influenced by recent developments following T-Mobile US (NASDAQ:TMUS) Inc.'s Capital Markets Day. The analysts noted a diminished likelihood of a higher competing offer emerging for Frontier. According to the analysts' observations, private investors are more inclined to consolidate smaller regional fiber-to-the-home (FTTH) operators before potentially selling them to larger carriers, often referred to as the Big 3.
TD Cowen's analysts expect the acquisition by Verizon to be finalized as initially announced, without further competitive bidding. The deal is anticipated to proceed without significant changes, which has been factored into the newly adjusted stock rating and price target for Frontier Communications.
The acquisition is a strategic move by Verizon, positioning itself to expand its broadband footprint. Frontier Communications, which provides a range of internet, TV, and phone services, is expected to complement Verizon's existing offerings. The acquisition agreement and the subsequent downgrade of Frontier's stock rating reflect the evolving landscape of the telecommunications industry, where consolidation is a recurrent theme.
In other recent news, Frontier Communications (NASDAQ:FYBR) has been a focal point of discussion with the announcement of Verizon's intent to acquire the company for $20 billion. The deal, which has led to a reevaluation of Frontier's stock by MoffettNathanson from Buy to Neutral, is expected to close in 18 months subject to regulatory approval and a Frontier shareholder vote.
In addition, Frontier has secured over $23 million in grants to expand high-speed fiber broadband service in California's San Bernardino and Riverside counties. On the financial front, Frontier reported a 2% revenue increase, reaching $1.48 billion, and a 5% growth in EBITDA during its Q2 2024 earnings call. Despite a net loss of $123 million, the company's operational cash flow remained robust at $374 million.
InvestingPro Insights
As Frontier Communications (NASDAQ:FYBR) prepares for its acquisition by Verizon, InvestingPro data provides additional context to the company's financial position. Despite the recent downgrade by TD Cowen, FYBR has shown a strong return over the past year, with a one-year price total return of 132.02% as of the latest data. This performance aligns with the acquisition price of $38.50 per share, which represents a premium over recent trading prices.
However, InvestingPro Tips highlight some challenges facing the company. Frontier operates with a significant debt burden, and its short-term obligations exceed liquid assets. This financial structure may have influenced the company's decision to accept Verizon's acquisition offer. Additionally, analysts do not anticipate the company will be profitable this year, which could explain the 8x EBITDA multiple used in the acquisition valuation.
For investors seeking a deeper understanding of Frontier's financial health and prospects, InvestingPro offers 5 additional tips beyond those mentioned here. These insights could provide valuable context for assessing the fairness of the acquisition terms and the company's standalone potential.
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