Having performed well in all the four quarters of 2013, Frontier Communications (NASDAQ:FTR) is off to a good start in 2014. The company has maintained its momentum with impressive results in the first quarter. Frontier did well as a result of its growing customer base. Its Secure Broadband bundles also saw strong sales. Management thinks that there is still room for Frontier to improve. Moreover, it is also counting on its new Internet of Things (IoT) product rollout in the second quarter to drive results. With its prospects looking bright, Frontier is definitely worth a closer look.
A solid start
Frontier is seeing growth in its customer base. The company is intent on keeping this momentum going and is optimistic about its operational and financial performance for the rest of the year. Frontier has managed to penetrate the local market with its services. Frontier delivered record broadband net adds of 37,158 last quarter, which is about 50% more than the residential broadband net additions relative to last year. Seeing these trends, Frontier is relying on its operating capabilities and financial discipline, and it is expecting this trend to continue for the rest of the year.
- Warning! GuruFocus has detected 8 Warning Signs with FTR. Click here to check it out.
- FTR 15-Year Financial Data
- The intrinsic value of FTR
- Peter Lynch Chart of FTR
Frontier's customer retention is also strong, as it saw the lowest drop in residential customers in five years with fewer than 10,000 customers lost in the quarter. Frontier is still on the track to close the Connecticut acquisition in the fourth quarter. In response, the company is making headway in laying the groundwork for integration of the AT&T Connecticut properties that it is acquiring.
Frontier is undertaking various initiatives which will grow its revenue. In the residential segment, it has increased the price of its Simply Broadband product from $29.99 to $34.99, and this is expected to add more value to the offering given the robust capability of its network. Besides this, Frontier is also making price adjustments to its other products as well, such as including video offers based on rising annual content fees.
Frontier has great expectations from the Internet of Things products that it is bringing out. The Internet of Things market is expected to improve in the future and with new products, Frontier can expect handsome growth. Frontier Secure Platform is the first product it will launch for Internet of Things.
As the customers are migrating towards higher speeds, the company is seeing another incremental revenue opportunity. Frontier has already completed network speed enhancements in many of its markets, and it is expecting a greater proportion of households and businesses to upgrade to higher speed tiers.
The new Frontier Anywhere Hosted Business Telephone System, which it introduced in the first quarter, has been impressive. The company is focused on achieving its free cash flow targets. To ensure its momentum, Frontier is focusing on continuous cost management, which will certainly provide a strong foundation for sustaining its level of free cash flow and dividend.
Moving ahead, Frontier is focusing on providing sustainable value creation. The company is into partnerships with companies such as DISH, Crius Energy, AT&T, and Yahoo. These smart moves will strengthen its portfolio, and will lead to impressive growth in the long run.
The stock looks reasonable at a trailing P/E of 57.30 and a forward P/E of 24.91, which indicates that the company’s cost cutting initiatives are working and its earnings will improve in the future. Considering these facts and Frontier's past performances, the stock looks like a strong investment for the long run.