A disappointing earnings and a dampened business outlook continue to raise serious doubts about Frontier Communications Corp (NASDAQ:FTR) long-term prospects. A wider than expected net loss compounded by the shedding of 93,000 customers affirms weakening fundamentals.
Frontier Communication Underperformance
Investor’s reaction to the weakening fundamentals has been swift. After a period of consolidation in the first half of the year, Frontier Communication has continued to edge lower. The stock has already shed more than 50% in market value, with price action pointing to further weakness heading into year-end.
Frontier Communication is a shadow of its glory years having shed more than 90% in market value from record highs of $117 a share in 2015. The stock is currently languishing at all-time lows of $2.88 a share and at risk of plunging below the $1 a share mark.
Any bounce back from current lows face a strong resistance at the $4.50 mark. The stock needs or rise and stabilize above the $4.50 if it is to be considered a bounce-back play after the recent sell-off. Below the $4.50 mark, the stock remains susceptible to further declines.
Frontier Communications finds itself in a precarious position in the market having felt the full effects of the cord cutting menace in the market. The loss of 93,000 customers in the recent quarter attests to the slowdown and lack of demand for the company’s offerings.
A move by the management team to try to reinvigorate growth and performance through cost cuts has failed to have the desired impact among investors. A lack of dividend to keep shareholders happy has all but continued to accelerate the sell-off wave. A worse than expected quarterly results all but affirmed growing concerns that the company’s core business is in an irreversible decline.
Sales decline is one of the headwind that has continued to deal the stock’s sentiments a big blow among investors. Sales in the recent quarter dropped to $2.13 billion from $2.25 billion reported a year ago. However, the average revenue per customer surged to 484.92 from $80.91. The company lost $426 million in the quarter something that did not go well with investors.
Customer loss in the broadband segment is another issue that raises serious doubt about the company’s long-term prospects. For starters, the company lost 61,000 broadband customers in the quarter compared to a net loss of 32,000 in the previous quarter.
For the full year, broadband customers have fallen by 5% to 3.8 million. Frontier Communications continues to lose a good chunk of its broadband customers to top U.S cable players such as Comcast and Charter Communications
The underperformance continues to elicit mixed reactions from analysts in the market. UBS analyst Bata Levi has downgraded the shares to a ‘sell’ and consequently lowered share price target to $3 a share. Cowen’s & Co analyst, Gregory Williams on the other hand, maintains a market perform rating on the stock.
Frontier Communications Prospects
Frontier Communication has been in a steady decline ever since it spent $10.54 billion to acquire Verizon’s wireless business in key states of California Texas and Florida. In addition to eating the company’s cash balance, the acquisition is yet to have the desired impact on the company’s bottom line.
The company’s cash balance has taken a significant hit in recent years an underperformance that has resulted in the slashing of dividends. Soaring debt levels is another issue that continues to spook investors fuelling the sell-off wave.
The company has carried reverse stock split of its stock all in the effort of reinvigorating prospects but to no avail. Customer losses quarter-over-quarter has turned out to be the order of the day. A string of negative news and developments has left investors with no choice, but to continue pushing the stock lower, depicted’ by the soaring short selling pressure.