Frontier Communications (FTR, Financial) once again posted better-than-expected results due to strong broadband net addition, strong growth in residential customers and resilient performance in its SME business unit.
In addition, Frontier Communication looks solid to carry forward this momentum in the second-half, with its impressive operating plan that should help the company generate higher revenue and enhanced profitability, while delivering handsome returns to investors.
A closer look at the performance
Revenue for the second quarter came in at $1.14 billion, a decline of 4% from last year. Its earnings of $0.05 per share for the second quarter were in line with the consensus estimates. The slowdown in revenue primarily was mainly due to lower voice revenue recognition and lower non-switched access revenue, which was partially compensated by increase in revenue of data service.
Various strategic initiatives such as greater emphasis on bundles with greater product mix and higher billings for customers seem to be working in favor of the company, as it is observing solid momentum in the average revenue per customer. It has extended its Internet of Things offerings with the launch of Nest Thermostat that will now allow customers to monitor and set their heat and air conditioning remotely.
This product will enhance its product portfolio of Internet of Things, along with Dropcam products, which was launched in the first quarter 2014. Dropcam product solutions are gaining tremendous traction in the market and the company expects it to grow at a healthy pace in the second half of the year. The roll out of these strategic products will help the customer to have full access to home automation products such as video monitoring, security monitoring that are supported with its premium text-to-speech service.
Improving prospects
In addition, the company remains on track to broaden its portfolio of Internet of Things as it will help the company in better leveraging its broadband capabilities, improve its revenue and give company greater opportunities to facilitate better tech support services to its growing customers across the markets. Frontier recently landed a three-year contract with Intuit and has agreed to facilitate its premium tech support and customer support capabilities to Intuit’s customers.
Further, the company is planning to invest strategically in the white label premium tech support that offers potential growth market for the company in the future. Frontier is making the right moves and getting federal and state approvals for its voice and tech supports services should enable the company to better leverage its premium tech support services and generate revenue for the company in the long run. For example, Frontier recently achieved a great milestone when it received state approval of its Connecticut acquisition by the Federal Communication Commission, or FCC, on July 25.
Furthermore, its SME market segment now looks appealing with the introduction of Frontier Texting powered by Zipwhip. Frontier Texting will facilitate its small and medium-sized business customers to stand and receive test messages through their existing land line phones. This should help the company to penetrate in the market where business customers prefer to use text messages.
Moreover, the company is excited to see the great momentum for this value addition as it has already sold more than 800 Frontier Texting to business across the region. The company continues to make progress with the Frontier AnyVare hosted business Voice-over-IP telephony platform that is now open to the various markets.
Frontier also launched new automated online capabilities that should allow the company to gain additional customers who are looking for Frontier secured site of products. The company also offers an advanced low cost and low maintenance solutions such as computer security Pro for PCs/Macs and mobile security such as Pro for Android OS-based mobile devices that help small and medium-sized businesses from cyber threats.
Frontier Communication has also witnessed substantial improvement in its customer premise equipment (CPE) product portfolio and packaging. The company had launched new frontier voice solutions in the first quarter which is off to a good start. The company expects to benefit from this category, though it is comparatively small portion of its business.
It expects to benefit from its robust Ethernet offerings as it sees good momentum with more than 34% growth in the second quarter relative to Q2 last year. Ethernet remains solid growth prospects for the company on commercial ground and the company is investing more capital to expand Ethernet to new areas as well as upgrading its MPLS switching platforms that should broaden its growth prospects in the future.
Conclusion
Frontier Communication is currently trading at the trailing P/E multiple of 65.40 and forward P/E multiple of 29.73, which indicates that the stock is cheap and has a lot of potential to grow in the future. The company is also improving on its performance as well as wealth matrixes as its profit and operating profit yields for the trailing twelve months are 3.86% and 21.52% respectively, while its return on equity is 4.57% for the last twelve months that are on the positive trends. Moreover, the analysts have estimated CAGR of 10% for the next year that indicate growth.
