Frontier Communications Corp (NASDAQ:FTR) shares are on declining spree, after the firm posted 3Q2016 earnings, including lower-than-projected sales and increasing loss. For the third quarter, the company recorded revenue drop of 3.2% from 2Q2016, GAAP loss of $0.12 per share, with adjusted net amounting to $0.04. Following the earnings estimates and report, multiple firms have downgraded their ratings on the FTR shares price. One analyst at Wells Fargo have revised the target price from $9 to $4.25.
Frontier’s revenue weakness comes from a declining base of new consumers, increasing churn of current consumers who are moving to other providers, and not to forget, lower revenue per client. The company’s revenue, however, jumped over 70% YoY, partially due to a major acquisition in wireline operations in Florida, California, and Texas. However, the firm still recorded lower-than-projected revenue from the contract and faces exaggerated competition from the peers.
The stock of Frontier Communications is trading close to 52-week low. While it may appear like a lucrative price for a high-dividend stock that can make a turnaround. The firm’s dividend yield, which is more than 10% for the trailing 1-year, is now being examined for how maintainable it will be in the scenario of these kinds of results. The outgoing is high when compared to the market, and Frontier has already reduced it couple of times in recent years. In a market that’s increasingly being dominated by the entities with premium mobile technology, FTR seems like a stock that shareholders might want to stay away from.
Frontier Communications stock declined over 20% last week on concerns that poor performance in the third quarter, which resulted in a restructuring plan, might threaten a healthy dividend yield. Those concerns rises when market consider covenants that warrants company to maintain its profit/debt ratio below 4.5 or reduce the dividend. However, Citi analyst David Phipps assumes that case may not materialize until 2022.
As per him, in base case, reducing sales 2.5% in the approaching year, the firm would have to halve the dividend payout in 2022 with the same dividend rate going on until 2026. Considering the bear case, the sales can decline 4%, opening the case for a halved dividend in year 2019.