Q1 2013 Earnings Call

May 07, 2013 8:30 am ET

Executives

Lee Newitt

Paul H. Sunu - Chief Executive Officer and Director

Ajay Sabherwal - Chief Financial Officer and Executive Vice President

Analysts

Barry M. Sine - Drexel Hamilton, LLC, Research Division

Christopher C. King - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Quarter 1 2013 FairPoint Communications, Inc. Earnings Conference Call. My name is Cathy, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Lee Newitt, Vice President Finance and Investor Relations. Please proceed, sir.

Lee Newitt

Thank you, Cathy. And good morning, everyone. Our speakers today are Paul Sunu, Chief Executive Officer; and Ajay Sabherwal, Chief Financial Officer.

I would like

by Cagdas Ozcan

Introduction:

Frontier Communications Corporation (FTR), incorporated in 1935, is the sixth largest local exchange carrier in the country. It provides regulated and unregulated data, voice, and television services to residents, businesses, and enterprises in the US. Primarily, it offers services to small and medium sized towns and cities including rural areas and smaller communities. It also offers computer technical support, broadband internet, and digital TV services in more than 27 states in the country. Frontier Communications, with a $4.07 billion market capitalization, is the smallest in size as compared to AT&T (T), Fairpoint Communications (FRP), and Country Link (CTL). Despite being a relatively small company, Frontier's current dividend yield of 9.83% is the highest in the telecom sector.

A brief analysis:

Dividend-seeking investors pay great attention to the consistency and rate of raising the dividend-payout rather than just the dividend yield. A company with a high

Q4 2012 Earnings Call

March 07, 2013 8:30 am ET

Executives

Lee Newitt

Paul H. Sunu - Chief Executive Officer and Director

Ajay Sabherwal - Chief Financial Officer and Executive Vice President

Analysts

Barry M. Sine - Drexel Hamilton, LLC, Research Division

Josh James - Stifel, Nicolaus & Co., Inc., Research Division

Stephen J. Flynn - Morgan Stanley, Research Division

Todd Morgan

Kenneth Smalley

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Quarter 4 2012 FairPoint Communications, Inc. Earnings Conference Call. My name is Sharon, and I'll be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Lee Newitt, Vice President of Finance and Investor Relations. Please proceed, sir.

Lee Newitt

Thank you, Sharon, and good morning, everyone. Our speakers today are Paul Sunu, Chief Executive Officer;

This series deals with relatively small telecommunications companies and focuses on the sustainability of their dividends. The first article dealt with the larger of these companies. This article deals with the smaller companies within the group.

As I have researched this, a few points have begun to jump out at me. First of all, although there has been consolidation, there is still a considerable amount of ongoing takeover activity within the sector. This makes annual numbers a bit confusing because a given year can include some months before a merger and some months after a merger has been completed. There are also some one-time transitional costs associated with these transactions. As the industry moves away from traditional telephone service (I just saw a movie in which one actor has the line - "Can you find a payphone ANYWHERE now??) - there will be considerable capital expenditures and

Q3 2012 Earnings Call

November 2, 2012 8:30 AM ET

Executives

Lee Newitt – Director, IR and Corporate Development

Paul Sunu – CEO

Ajay Sabherwal – EVP and CFO

Analysts

Sean Brown – Pay-In Capital

Paul Saunders – Hudson Bay Capital

Brian Murphy – THL Credit

Jason Alper – Tejas Securities

Elizabeth Clark – INVESCO

Pat Dyson – GoldenTree

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Third Quarter 2012 FairPoint Communications Inc. Earnings Conference Call. My name is Diana and I’ll be the operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Lee Newitt, Director of Investor Relations and Corporate Development. Please proceed.

We love analyzing and evaluating the rural telecom sector because these companies have high yields with regards to dividends and free cash flows. We are aware that these companies are not growth engines but we appreciate the efforts of Frontier Communication (FTR), CenturyLink (CTL), FairPoint Communications (FRP) and Windstream (WIN) to mitigate the wireline revenue declines with growth in strategic communications such as Internet, Cable TV, Satellite TV and even cloud computing services. Last week we analyzed and evaluated CenturyLink versus FairPoint and while we were surprised that FairPoint enjoyed a higher Internet subscriber growth than CenturyLink, CenturyLink has a narrower wireline decline, a higher credit rating, the cloud computing infrastructure business (Savvis) and an authorized reseller agreement with Verizon Wireless (VZ). In this report, we will compare Frontier against CenturyLink. Our thesis is that while Frontier is off its $3.06 lows previously

We had previously written upon the dealings between Verizon Communications (VZ) and smaller historically rural local exchange carriers such as CenturyLink (CTL) and FairPoint Communications (FRP). We remembered that there was much buzz a few years ago when Verizon announced the sale of its Northern New England Wireline operations located in the states of Maine, New Hampshire and Vermont to FairPoint for $2.2B in cash and shares of FairPoint common stock in a Reverse Morris Trust. Under this plan, the cash portion of the deal went to Verizon Communications and 35M shares issued by FairPoint went to Verizon's shareholders. This transaction increased FairPoint's customer base by 746% and made FairPoint the eighth largest telephone company in the US. The price to do all this was steep and forced FairPoint to tap the capital markets for $1.6B in new debt.

Source: FairPoint Q1 2008 10-Q

CenturyLink's predecessor

CenturyLink (CTL), according to the online buzz, will soon offer bonded VDSL2 with speeds of up to 100 Mbps (an official announcement regarding this development has yet to be made, but there are bundle prices with the new high speeds listed up on the company website.) This top speed is up from a previous high of 40 Mbps. It seems the new technology is still in the testing stages, with pair bonding tests currently being carried out in the Denver area, but rumors suggest we can expect the services to be offered more widely later this year.

News that CenturyLink is making improvements to its current communications service will come as a fresh of breath air to investors. The company, along with other similar rural-based organizations, has struggled to keep up with the new hi-speed generation of telecommunications. It did seem for a while it would

Do you like to follow smart money buying and selling trends? For a closer look at stocks that are seeing some bearish sentiment from short sellers, we ran a screen.

We began by screening the tech sector for stocks that have outperformed the market over the last quarter, with over 20% quarterly return.

We then screened for those with bearish sentiment from short sellers, with significant increases in shares shorted month-over-month representing at least 2% of share float. This indicates that short sellers are more bearish on these names than they were a month ago.

(click to enlarge)

Do you think these stocks are in trouble? Use this list as a starting point for your own analysis.

List sorted by decrease in shares shorted month-over-month as a percent of share float.

1. SXC Health Solutions, Corp. (SXCI): Provides pharmacy benefit management services and healthcare information technology solutions to the

Within the broader telecommunications industry is a group of companies that primarily provide local and long distance voice services, sometimes referred to as plain old telephone service, or "POTS." These companies are each facing significant value destruction from the seemingly irreversible industry trend of rapidly declining POTS, and are therefore attempting to widen their offerings into a vast array of new data and Internet products and services for both residential and commercial customers.

The group that I will look at range in size from industry giant AT&T (T) to the much smaller FairPoint Communications (FRP), as well as those companies in between like Frontier Communications (FTR), CenturyLink (CTL), and Windstream (WIN). I have excluded Verizon Communications (VZ) from this discussion, even though it is a major player in POTS, because it is further along in its evolution away from POTS. Verizon now generates

We recently reviewed CenturyLink (CTL) versus Frontier Communications Corporation (FTR) and Windstream Corporation (WIN), two other leading rural telecommunications firms and we believe that CenturyLink offers the best risk-reward scenario of the three firms.

CenturyLink, Inc. CenturyLink is the leader in the rural-telecom services industry segment and the third-largest U.S. telecom company by market capitalization, with a market cap of $23.6B as well as the third-largest by total access lines. CTL provides local and long-distance, network access, private line (including special access), public access, broadband, data, managed hosting (including cloud hosting), colocation, wireless and video services. In the portion of the 37 states where CTL has local service area access lines, CTL is the incumbent local telephone company. CTL also operates 68 data centers throughout North America, South America, Europe, and Asia. CTL became a top-tier telecom provider through its acquisition of Embarq (legacy local telephone division of

My series of articles examining the influence that Porter's Five Forces have on Frontier Communications (FTR) and the telecom operator industry has reached the last force - which is the "Intensity of Rivalry". The previous installments discussed how the "Threat of New Entrants" or "Barriers to Entry", the "Power of Suppliers", the "Power of Buyers, and the "Threat of Substitutes" impact the telecom operator industry and the strategies employed by the competitors in the industry, including Frontier.

An analysis of the "Intensity of Rivalry" attempts to describe how intense the competition is within the telecom operator segment of the telecommunications industry. The greater the intensity of rivalry, the more difficult it is for any single company within the industry to garner excess profits relative to its competitors and relative to the overall market. There are 8 aspects or sub-components to

CenturyLink (CTL) has grown through a series of acquisitions into the third largest US telecommunications company. Wireline connections in 37 states accommodate voice transmission and broadband internet access. Most CenturyLink markets are located in Western, Midwestern, and Southern US locations. The company's financial future depends upon integrating acquisitions to increase cash flow that is ultimately deployed in a successful broadband strategy. These circumstances are the focus of this article.

Acquisitions

The purchase of Qwest Communications by CenturyLink occurred on April 1, 2011. This doubled the number of access line subscribers to 15.1 million. In 2009, Embarq was acquired and CenturyLink completed the integration of this company in the last quarter of 2011.

CenturyLink acquired Savvis on July 15, 2011. This move transitions CenturyLink into managed hosting and collocation services. These virtual environments permit delivery of cloud-based computing options to businesses. That is a growth area with which

The broad telecommunications industry currently encompasses:

• Companies providing local and long distance voice services, sometimes referred to as plain old telephone service (or "POTS")
• A plethora of new data and internet services for both residential and commercial customers
• Switched access services that allow telecoms to complete calls on each other's networks
• Equipment sales

Frontier Communications (FTR), with revenue of about $5.2 billion and a market capitalization of about $4.4 billion, occupies an industry position between industry behemoth AT&T (T), which has revenue of about $127 billion and a market capitalization of about $187 billion, and FairPoint Communications (FRP), with revenue of about $963 million and a market capitalization of about $109 million. Two other companies that compete directly with Frontier in the space are CenturyLink (CTL) and Windstream (WIN). CenturyLink has revenue of about $15.4 billion and a market capitalization of about $24.1 billion while

If you're looking at low-priced stocks, one thing to watch out for are potential "value traps," or stocks that have low prices because of recently bad market sentiment. To avoid these names, one idea is to look at what short sellers are doing.

We ran a screen on the tech sector for stocks priced below $5 a share for those with significant decreases in shares shorted (or short covering) month-over-month, indicating short sellers are less bearish on these names.

‪Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.‬

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this

There aren't a lot of stocks that can grow their earnings at a high rate and offer decent dividends. However, we have identified the five following stocks which offer both, earnings growth as well as a dividend yield higher than 5%. Ranging from the healthcare to the asset management industry, some of these companies are well-positioned to take advantage of their industry dynamics and to give good returns to investors along the way. We find two of these stocks risky, and recommend long positions in the remaining three high dividend stocks.

Health Care REIT (HCN): Heath Care REIT is a real estate investment trust investing in the healthcare properties in the United States. The share price has gone up by 15% in the past twelve months, and it is now trading at a forward price to earnings ratio of 14 times. The company also offers an attractive forward

Ironically, market history is clear that major meltdowns never result from what the consensus is worried about. It’s always the overlooked risks that bring the house down -- and rarely, if ever, when so many are so bearish, as is the case now.

For example, the Conference Board’s Leading Economic Index increased for the fourth consecutive month in August. Growth is still slow and jagged in the US. But at least at this point we’re not in recession -- and that’s a huge difference with pre-market meltdown 2008, when we’d already slipped into one.

Rather, the biggest risk to investors is the

By Larry Gellar

With the situation in Europe improving, many investors are looking to jump back into stocks. While popular ETFs like SPDR S&P 500 (SPY) and PowerShares (QQQ) look ready to move up again, we’ve identified 5 stocks that will offer superior returns. These stocks are involved in a variety of industries ranging from oil to technology:

Frontier Communications Corporation (FTR) has been relatively flat lately, although the company has just released some exciting new cybersecurity tools. Executive Vice President Melinda White explained, “Frontier Secure offers leading-edge programs that give adults peace of mind about the well-being of their children while online and guarantees the security of important images, personal documents and financial records…Convenience is critical, and Frontier Secure’s unlimited back-up and file sharing allow access from any device connected to the Internet. Technical issues are addressed by Frontier RescueTechs, a 100% U.S.-based team

The banner in the window of the Verizon Wireless (VZ) store in Montpelier was a declaration of war on local landline providers. "Save on your home phone service," it said; "Unlimited [nb. U.S.] calling for $19.99/month." This is particularly interesting here in Northern New England where Verizon (VZ) (55% owner of VZW) sold its landline business to FairPoint Communications in 2007 after years of underinvestment in infrastructure. FairPoint (FRP) went bankrupt not too long afterwards and has since reemerged; now FairPoint and other local landline carriers face a very serious threat to their already shrinking landline business from VZW.

FairPoint charges $58.99/month for unlimited U.S. calling in Vermont and that price does not include features like voice mail, which are part of the VZW Home Phone Connect service. (You actually pay more than the headline price monthly for both plans once the "additional charges" are added on).

If you are an equity investor looking for stocks trading at attractive levels and generating significant amounts of cash, the following list might provide you with an interesting staring point for your own analysis.

To compile this list, we started with a universe of about 50 stocks trading 0-10% above the 52-week low. We then collected data on levered free cash flow, and identified the companies that had significant levels levered free cash flow when compared to its current market cap. (Note: Levered free cash flow is the free cash flow available to the company after paying interest on outstanding debt. It is a measure of the cash flow that is truly available to the company).



Having this information in mind, which of these companies do you find to be more attractively priced? Full details below.

1. American National Insurance Co. (ANAT): Life Insurance Industry. Market cap of $2.11B.