In spite of the fact that Frontier Communications (NASDAQ:FTR) is up this year, the organization's last-reported first-quarter results were not up to the imprint. Frontier missed estimates despite the fact that it picked up a broadband piece of the overall industry in 91% of its markets. Additionally, Frontier's revenue was down 4.3% from the year-back quarter, while its earnings dropped 18.4% year over year.
Investors are pulled in to Frontier because of its eye-getting dividend yield of 7%. On the other hand, if Frontier is not able to enhance its revenue and earnings significantly going ahead, then its dividend may take a hit. Indeed, Frontier's present dividend yield of 7% is lower than the five-year normal yield of 10.7%, so a dividend remove can't be dominated. Furthermore, the organization has a payout degree of a massive 400%.
Analysts aren't optimistic in regards to Frontier's performance going ahead. As indicated by estimates, Frontier's earnings are expected to drop at a CAGR of 20.5% in the next five years, which is more prominent than the decline of around 9% seen in the last five years. It also has an enormous obligation figure of $8.13 billion to battle with. In comparison, Frontier's cash position is generally frail at just $954 million.
Thus, Frontier has to service an immense obligation, so it is important for the organization to enhance its revenue and earnings to sustain the high payout proportion. Besides, Frontier is an expensive proposition at close to 60 times last year's earnings. Also, it seems that Frontier is making some positive moves to enhance the business.
Attempting to make strides
The first-quarter numbers may look truly disappointing; however, Frontier's administration has an alternate view on this. As per Maggie Wilderotter, Frontier's chairman and chief executive officer, "We are greatly pleased to report that the strong energy we experienced in each of the four quarters of 2013 proceeded in the first quarter of 2014."
Frontier is attempting to put the disappointment of a frail earnings performance behind it, which it ascribed to certain bearer settlements and speak with a softer tone revenue. Additionally, the sale of customer premise supplies (CPE) was also down in the first quarter, which added to the revenue decline. Despite the fact that CPE is just a small part of Frontier's general business, it is paramount because it allows the organization to develop its relationship with customers and results in month-to-month repeating support fees. Looking forward, the organization is positive about its prospects as month-to-month repeating revenue is relied upon to stay stable, alongside development in information.
System enhancements to drive development
Frontier has finished the improvement of system speeds in a significant number of its markets. This will permit households and business organizations to move up to higher speed tiers that will at last increase its revenue.
Subsequently, Frontier seems to have made a decent move by securing this asset as it will support its long haul development. Furthermore, Frontier is presenting new features. Case in point, it has now turned into the first level 1 operator to empower content messaging through a business landline number.
By offering another gimmick, Frontier will have the capacity to bring more business customers into its creas, and consequently enhance its revenue era opportunities.
Frontier's strategies look impressive, and should help the organization keep up a respectable dividend over the long haul. Moreover, the organization's cash stream metrics are strong. So, investors have a number of reasons to invest in Frontier for the long run.