On Friday, Wolfe Research maintained a positive outlook on Frontier Communications (OTC:FTRCQ) (NASDAQ:FYBR), reiterating an Outperform rating and a $35.00 price target for the stock. The firm highlighted the company's robust financial performance, including stronger revenue, EBITDA, and free cash flow (FCF) results, as well as significant growth in fiber broadband additions.
Frontier Communications reported a notable increase in Business and Wholesale revenue, up 3.7%, surpassing the consensus estimate which predicted a decline. Additionally, the company saw a total broadband net addition of 36,000 customers, which was higher than the expected 26,000. This included a substantial increase in fiber broadband net adds, with 92,000 new customers compared to the 81,000 anticipated by consensus and the 84,000 estimated.
The company's free cash flow also exceeded expectations, reporting a loss of $304 million, which was less than the forecasted loss of $618 million by consensus and $541 million estimated. This improvement was primarily due to reduced capital expenditures, which totaled $678 million, including vendor financing payments, against the consensus expectation of $884 million and the estimate of $875 million.
Looking ahead, Frontier Communications has raised the lower end of its 2024 guidance from $2.20 billion to a range of $2.22 to $2.25 billion. This update comes with the assurance of consistent fiber build passings, totaling 1.3 million, and a year-over-year decline in capital investment, projected between $3.0 and $3.2 billion. The company managed to reduce capital investment by approximately $500 million in the first half of 2024 while increasing the number of fiber passings.
The company's earnings call is expected to focus on the trends in broadband net additions, including a quarterly improvement of 40 basis points and an annual improvement of 190 basis points in terminal penetration, now exceeding 45%. Discussion is also anticipated on EBITDA growth and the balance between capital expenditures and free cash flow, as the company has been successful in adding more fiber passings while reducing capital investment.
Frontier Communications now serves 73% of its customers on fiber, which contributes to 65% of its adjusted EBITDA. The company has also modified its reporting on penetration rates, shifting from providing 12-month to 36-month penetration disclosures to now offering insights into "base fiber" and "expansion fiber" penetration.
In other recent news, Frontier Communications has seen significant developments. UBS initiated coverage on Frontier Communications, giving it a Buy rating with a price target of $33.00, reflecting optimism about the company's transition towards a growing fiber provider. Goldman Sachs also initiated coverage on Frontier, expressing positivity about the company's shift towards fiber broadband services and setting a $29.00 price target. TD Cowen, however, revised its outlook on Frontier, reducing the stock's price target to $39 from $41, while maintaining a Buy rating.
Frontier Communications recently reported its first positive revenue growth since 2015, with fiber now making up the majority of the company's business. The company has announced a series of strategic financial moves, including issuing approximately $750 million in secured fiber network revenue term notes and amending its revolving credit facility to increase the cap on new securitization debt to $5.5 billion.
InvestingPro Insights
Frontier Communications (NASDAQ:FYBR) appears poised for continued growth in fiber broadband, as underscored by Wolfe Research's optimistic stance. However, potential investors should be aware of the financial nuances captured by InvestingPro. The company operates with a significant debt burden and is quickly burning through cash, which could be concerning factors for long-term sustainability. Moreover, analysts have revised their earnings downwards for the upcoming period, signaling potential headwinds that could affect the stock's performance.
From a valuation perspective, Frontier Communications is trading at a high earnings multiple, with a P/E ratio of 261.27, which adjusts to 80.22 for the last twelve months as of Q1 2024. This could indicate that the stock is priced optimistically relative to its earnings. Additionally, the company's valuation implies a poor free cash flow yield, which is a crucial metric for assessing the value investors are getting for the price they pay. On the positive side, Frontier has demonstrated a high return over the last year and a strong return over the last three months, highlighting its recent market performance.
For those considering an investment in Frontier Communications, it's worth noting that there are 11 additional InvestingPro Tips available at https://www.investing.com/pro/FYBR, which provide deeper insights into the company's financial health and market position.
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