BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate BUSINESS DESCRIPTION Frontier Communications Corporation provides communications services to residential, business, and wholesale customers in the United States. It offers broadband, video, voice, and other services and products through a combination of fiber and copper based networks to residential customers. STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change -34.39-85.33-58.04 GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues -10.82 17.97 26.33 Net Income 52.50-115.90 NA EPS 33.89-70.24 NA RETURN ON EQUITY (%) Ind Avg S&P 500 Q3 2017-31.34 27.19 13.41 Q3 2016-12.82 32.67 11.79 Q3 2015-2.49 40.60 12.91 SELL Sector: Telecom Sub-Industry: Integrated Telecommunication Services Source: S&P SELL RATING SINCE 02/28/2017 Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years Rating History HOLD Volume in Millions 2015 2016 2017 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History SELL 90 80 70 60 50 40 30 20 10 0 600 400 200 0 P/E COMPARISON n/m EPS ANALYSIS¹ ($) Q1-0.75 Q2-0.45 Q3-1.05 2015 Q4-2.10 Q1-3.15 20.29 Ind Avg Q2-1.05 Q3-1.80 2016 NA = not available NM = not meaningful Q4-1.80 Q1-1.65 24.97 S&P 500 Q2-9.15 Q3-1.19 2017 1 Compustat fiscal year convention is used for all fundamental data items. RECOMMENDATION We rate () a SELL. This is driven by several nesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's nesses can be seen in multiple areas, such as its generally high debt management risk, disappointing return on equity and generally disappointing historical performance in the stock itself. HIGHLIGHTS The debt-to-equity ratio is very high at 5.21 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. To add to this, has a quick ratio of 0.59, this demonstrates the lack of ability of the company to cover short-term liquidity needs. Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major ness within the corporation. Compared to other companies in the Diversified Telecommunication Services industry and the overall market, 's return on equity significantly trails that of both the industry average and the S&P 500. 's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 85.33%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now., with its decline in revenue, slightly underperformed the industry average of 1.3%. Since the same quarter one year prior, revenues fell by 10.8%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share. Net operating cash flow has increased to $356.00 million or 10.90% when compared to the same quarter last year. Despite an increase in cash flow, 's average is still marginally south of the industry average growth rate of 15.31%. Report Date: PAGE 1
PEER GROUP ANALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) -5% 40% UNFAVORABLE -20% OOMA IDT EBITDA Margin (TTM) OIBR.C CBB FAVORABLE ATNI CNSL BCOM WIN HCOM 50% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $182 Million and $1.3 Billion. Companies with NA or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) -5% 40% UNFAVORABLE -175% WIN Earnings Yield (TTM) OIBR.C NTL FAVORABLE ATNI CNSL OOMA BCOM IDT CBB HCOM 50% Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -4.5% and 36.1%. Companies with NA or NM values do not appear. INDUSTRY ANALYSIS The US diversified telecommunications services industry provides communications and high-density data transmission through high bandwidth/fiber-optic cable networks. The industry is classified into two sub-categories, alternative carriers and integrated telecommunication services. There are three parallel markets, terrestrial networks, cellular networks, and satellite networks, which include major players such as AT&T (T), Verizon Communications (VZ), and Centurylink (CTL). The industry is mature, cyclical, capital intensive, and undergoing consolidation and globalization. The recent M&A trend, ongoing regulatory liberalization, and privatization have fueled competition in local telephone services markets and expansion into domestic and cross-border markets. The industry has high entry barriers due to the dominance of well-established players, brand identities, high levels of automation, and distribution challenges. Growth is driven by technological advances and demand for integrated high bandwidth data transmission. Most companies are seeking new market segments, such as mobile communications, digital data transmission, and value added services. The changing pace of technology implementation and convergence of cable network technologies through bundling have redefined the competitive landscape. However, the recent launch of cable telephony, VoIP, and improved wireless and cellular technologies pose a threat to traditional wired telecommunication services. The US Federal Government, through the Communications Act of 1934, established the Federal Communications Commission to regulate and retain jurisdiction over use of the radio spectrum, interstate telecommunications, and international communication that originates or terminates in the US. Deregulation has occurred since the break-up of AT&T in 1982 and rendered the market more competitive. The industry is regulated by the US Telecommunications Act of 1996 and 2005, which aims to abolish cross-market barriers and prohibit dominant players from operating within one communications industry. PEER GROUP: Diversified Telecommunication Services Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) FRONTIER COMMUNICATIONS C 7.90 885 NM 9,320.00-855.00 CNSL CONSOLIDATED COMM HLDGS IN 13.50 956 NM 879.13-34.87 ATNI ATN INTERNATIONAL INC 55.48 889 NM 502.02-10.12 WIN WINDSTREAM HOLDINGS INC 2.42 443 NM 5,664.10-367.80 BCOM B COMMUNICATIONS LTD 14.10 421 3.09 2,716.61 136.92 IDT IDT CORP 15.19 377 39.97 1,501.73 8.18 HCOM HAWAIIAN TELCOM HOLDCO INC 30.95 359 NM 380.44-5.92 OOMA OOMA INC 9.85 182 NM 110.34-12.67 NTL NORTEL INVERSORA SA 45.54 1,339 NA 3,549.40 172.01 OIBR.C OI SA 7.17 1,155 NM 8,113.23-2,509.41 CBB CINCINNATI BELL INC 20.70 1,032 22.26 1,146.70 50.00 The peer group comparison is based on Major Integrated Telecommunication Services companies of comparable size. Report Date: PAGE 2
Annual Dividend Rate COMPANY DESCRIPTION Frontier Communications Corporation provides communications services to residential, business, and wholesale customers in the United States. It offers broadband, video, voice, and other services and products through a combination of fiber and copper based networks to residential customers. The company also provides broadband, Ethernet, traditional circuit-based, data and optical transport, and voice services, as well as Multiprotocol Label Switching and Time Division Multiplexing services to small business, medium business, and larger enterprises, as well as sells customer premise equipment. In addition, it offers 24/7 technical support; wireless broadband services in selected markets; and frontier secure suite of products, including computer security, cloud backup and sharing, identity protection, and equipment insurance. Further, the company provides satellite TV video services; voice services, including data-based VoIP, and long distance and voice messaging services; and a package of communications services. Additionally, it offers a range of access services that allow other carriers to use facilities to originate and terminate their local and long distance voice traffic. As of December 31, 2016, it served approximately 5.4 million customers and 4.3 million broadband subscribers in 29 states. The company was formerly known as Citizens Communications Company and changed its name to Frontier Communications Corporation in July 2008. Frontier Communications Corporation was founded in 1927 and is based in Norwalk, Connecticut. 401 Merritt 7 Norwalk, CT 06851 USA Phone: 203-614-5600 http://www.frontier.com Employees: 28000 STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 1.5 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 20% of the stocks we rate. Total Return 0.5 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company ranks at the bottom of the companies we cover. Efficiency 1.5 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 20% of the companies we review. Price volatility 0.5 out of 5 stars Measures the volatility of the company's stock price historically. The stock is more volatile than nearly all of the stocks we monitor. Solvency 0.5 out of 5 stars Measures the solvency of the company based on several ratios. The company is less solvent than nearly all of the companies we analyze. Income 5.0 out of 5 stars Measures dividend yield and payouts to shareholders. The company's dividend is higher than 90% of the companies we track. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. Report Date: PAGE 3
Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial -1.02 Q4 FY17-4.27 E 2017(E) -2.44 E 2018(E) INCOME STATEMENT Net Sales ($mil) 2,251.00 2,524.00 EBITDA ($mil) 887.00 975.00 EBIT ($mil) 348.00 397.00 Net Income ($mil) -38.00-80.00 FINANCIAL ANALYSIS 's gross profit margin for the third quarter of its fiscal year 2017 is essentially unchanged when compared to the same period a year ago. Even though sales decreased, the net income has increased. has liquidity. Currently, the Quick Ratio is 0.59 which shows a lack of ability to cover short-term cash needs. The company's liquidity has increased from the same period last year, indicating improving cash flow. At the same time, stockholders' equity ("net worth") has significantly decreased by 28.31% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future. STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.thestreetratings.com. BALANCE SHEET Cash & Equiv. ($mil) 286.00 331.00 Total Assets ($mil) 27,076.00 29,045.00 Total Debt ($mil) 17,770.00 17,943.00 Equity ($mil) 3,410.00 4,757.00 PROFITABILITY Gross Profit Margin 39.40% 38.63% EBITDA Margin 39.40% 38.62% Operating Margin 15.46% 15.73% Sales Turnover 0.34 0.27 Return on Assets -3.15% -1.36% Return on Equity -31.34% -12.82% DEBT Current Ratio 0.70 0.68 Debt/Capital 0.84 0.79 Interest Expense 378.00 386.00 Interest Coverage 0.92 1.03 SHARE DATA Shares outstanding (mil) 78 78 Div / share 0.60 1.58 EPS -1.19-1.80 Book value / share 43.46 60.83 Institutional Own % NA NA Avg Daily Volume 3,065,568 18,252,847 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. Report Date: PAGE 4
RATINGS HISTORY Our rating for has not changed since 2/28/2017. As of 11/22/2017, the stock was trading at a price of which is 86.2% below its 52-week high of $57.30 and 26.4% above its 52-week low of $6.25. 2 Year Chart HOLD: $73.80 2016 SELL: $43.95 $100 $75 $50 $25 MOST RECENT RATINGS CHANGES Date Price Action From To 2/28/17 $43.95 Downgrade Hold Sell 11/20/15 $73.80 No Change Hold Hold Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 11/22/2017) 44.02% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 30.74% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 25.24% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 VALUATION SELL. This stock s P/E ratio is negative, making its value useless in the assessment of premium or discount valuation, only displaying that the company has negative earnings per share. For additional comparison, its price-to-book ratio of 0.18 indicates a significant discount versus the S&P 500 average of 3.17 and a significant discount versus the industry average of 3.48. The price-to-sales ratio is well below both the S&P 500 average and the industry average, indicating a discount. After reviewing these and other key valuation criteria, proves to trade at a discount to investment alternatives within the industry. Price/Earnings NM Peers 20.29 Neutral. The absence of a valid P/E ratio happens when a stock can not be valued on the basis of a negative stream of earnings. 's P/E is negative making this valuation measure meaningless. Price/Projected Earnings NM Peers 15.62 Neutral. The absence of a valid price-to-projected earnings ratio happens when a stock can not be valued on the basis of a negative expected future earnings. 's ratio is negative making this valuation measure meaningless. Price/Book 0.18 Peers 3.48 Discount. A lower price-to-book ratio makes a stock more attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a significant discount to its peers. Price/Sales 0.07 Peers 11.68 Discount. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a significant discount to its industry on this measurement. DISCLAIMER: Price/CashFlow 0.33 Peers 7.21 Discount. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a significant discount to its peers. Price to Earnings/Growth NA Peers 0.67 Neutral. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. Ratio not available. Earnings Growth lower higher -70.24 Peers 79.95 Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. However, is expected to significantly trail its peers on the basis of its earnings growth rate. Sales Growth lower higher 17.97 Peers 1.70 Higher. A sales growth rate that exceeds the industry implies that a company is gaining market share. has a sales growth rate that significantly exceeds its peers. The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. Report Date: PAGE 5