In the last three months, Frontier's (NASDAQ:FTR) insiders have bought about 120,000 shares of stock, compared with insider sales of around 96,495 shares. In the last one year, insider purchases have been about two million shares of stock, compared with insider sales of around 800,000. Investors can't imitate insider purchases, and shouldn't do so without proper research, but the behavior of insiders can serve as an inspiration for further study. If insiders are not confident of Frontier's prospects, they would prefer to diversify their wealth.
Taking a closer look at Frontier
Frontier has fallen around 9% since it announced its second-quarter report. Its revenues dipped 2% year-on-year. With production costs increasing, the business suffered a net loss of $38.5million, compared with a net income of $18 million in the second quarter of the year-prior.
However, earnings per share in the quarter were $0.24, annualizing that figure yields a P/E multiple of 33.99. It is possible that Frontier insiders are looking at the company's dividend yield. It has been 12.20% year to date, and it outpaces rivals such as AT&T (NYSE:T) at 5.20%, CenturyLink (NYSE:CTL) at 6.50%, and FairPoint (NASDAQ:FRP).
Hedge fund managers
In addition to insider activity, hedge fund managers are also active in Frontier. The list of bullish managers by March include Richard Haydon, Bernard Horn, Jeffery Berney, Phill Gross, Robert Atchinson, and Chase Coleman.
Frontier insiders may also be looking at the company's valuation. With a price-to-sales ratio of 0.80, it is cheaper than AT&T (1.4) and CenturyLink (1.09). Only Fairpoint at 0.26 has a more attractive price-to-sales ratio. Frontier has an operating margin of 15.30%, which trumps AT&T (9.52%) and Fairpoint (-19.35%).
Frontier's return on equity is 13.02%. It is far above AT&T (7.98%), CenturyLink (5.53%), and Fairpoint. Frontier was able to accomplish this through increases in broadband and video customers, in addition to a rise in monthly business revenue per customer.
Its return on assets is 2.44%, compared with -6.61% for Fairpoint Communications. Looking forward, Frontier's forward P/E of 17.13 is attractive, especially compared to the likes of Fairpoint, which is not expected to make profit. Now, AT&T (12.52) and CenturyLink (12.15) are cheaper according to forward P/Es, but it is important to note that Frontier dominates the duo in terms of dividend yield.
Insiders might also be considering the state of Frontier's surrounding macroeconomic environment. The future of the telecoms services industry is bright. IDC stated that industry level sales hit a high in 2012, with 2013 growth forecasted at 3.4%. Additionally, price declines have made the industry more attractive to consumers.
In the long run, insiders may believe the stock will make up for its debt load. This may be why some of the financial industry's most prominent analysts have shown interest in the stock. At the end of the last quarter, four analysts had buy ratings on the company, seven had hold ratings, and only three advised investors to sell the stock. Some of the most bullish analysis included BMO capital and Nomura.
The voice and switched access revenues were responsible for the company's revenue decline in the last quarter. But the company's data services revenue is growing. The next quarter will be important for Frontier, and regaining its customers will be the real test of the company's business strategy. Right now, the stock is trading at levels which discount the strength of Frontier's core business. But insiders know that Frontier is one of the most profitable stocks available. Wise investors should closely monitor insiders.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.