Frontier Communications: Latest Solutions Will Boost Price Multiples

| About: Frontier Communications (FTR)
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Frontier Communications (NYSE:FTR) announced that it has entered into an agreement with TRG Customer Solutions to offer three Frontier Secure products. The products to be offered include comprehensive computer security, cloud-based unlimited back up and sharing, and proactive identity protection. Frontier has been trading at price multiples that are profitable for investment. Below, I will explain how the growth stories surrounding Frontier's latest solutions may translate into even more profitable multiples.


Frontier reported 2012 second quarter net income of $18 million as compared to $32.3 million in the second quarter of 2011. The loss includes the extinguishment of debt, integration costs, and severance and early retirement costs. Excluding the aforementioned items, adjusted net income attributable to shareholders would be $75.3 million. However, the company expanded its network's broadband reach to additional 60,000 households and connected 92,876 additional broadband homes through its agreement with Hughes Network Systems. Its cash and cash equivalents was $410.0 million, compared with $326.0 million for same period the prior year.

"Frontier second quarter 2012 showed solid revenue performance and the highest operating margin since the closing of our acquisition," said Maggie Wilderotter, Frontier's CEO. "Our strong results were positively impacted by our proactive revenue initiatives commenced in the second quarter to rationalize our product set and customer pricing."

Frontier reported net income of $124 million for the nine months ended September 30, 2012, compared with consolidated net income of same period the prior year of $112.3 million. The company reported consolidated operating income for the nine months ended September 30, 2012 of $3.9 billion, compared with $3.8 billion for the same period the prior year.

Frontiers reported third quarter net income attributable to shareholders of $67.0 million. It also recorded an operating income of $275.2 million. During the three months ended September 30, 2012, it lost approximately 51,800 customers as compared to 65,700 customers in the three months ended June 30, 2012 and 72,600 customers in the three months ended March 31, 2012. Also, the average monthly customer revenue per customer increased $2.09 over the second quarter of 2012 and $3.61 over the first quarter of 2012.

How Are Solutions Improving Sales Growth?

Some say when businesses leverage on them, they experience improved operational effectiveness, increased customer satisfaction, and revenue growth. The belief is that Frontier's solutions add value to any technical support programs offered by companies.

"Frontier had a milestone third quarter, with the best revenue and customer metrics since the closing of our July 10 acquisition. Our improved broadband speeds, simple and flexible pricing, and great customer service are positively impacting the customer experience," said Wilderotter. "Our strong results enabled us to raise $850 million in the bond market."

In the last year, Frontier pushed many solutions into the market. Pocono Raceway enlisted the expertise of Frontier's engineering and operations teams to design a telecommunications system that would accommodate current and future growth and also help attract other entertainment opportunities. Frontier's TV customers now watch all seven live Pac-12 TV Networks on their iPads through the new Pac-12 Now app. In May, the company launched Frontier Secure, a solution geared toward protecting digital lives. It also rolled out AT&T mobility trial in October in limited market, leveraging WiFi routers/network and opening new market segments. Frontier announced network enhancements and capital investments in Pennsylvania totaling $26.5 million, then offered broadband, digital phone service, satellite video, VOIP services, and customer premises equipment.

If we relate the deployment of Frontier's solutions to its financial reports, it is clear that the company has consistently improved its figures, so it can be said Frontier is operating at an efficient level. The agreement with TRG Customer Solutions will deepen Frontier's relationship with it. "These products complement the solutions TRG offers and improve the already solid reliability of its offerings," said Kelly Morgan, Frontier's Vice President. However, it is noticeable that the TRG agreement is Frontier's first solution deal this year. It is understandable that this is an important market, and gaining a head start is good for Frontier.


Let's check how the communications company is performing with the rest. With a price-to-earnings ratio of 21.10, compared with 45.49 for AT&T (T) and 37.57 for CenturyLink (CTL), and gross margin of 0.91, compared to 0.55 for AT&T, 0.41 for Sprint Nextel (S), and 0.55 for FairPoint (FRP), Frontier does appear to be ahead of its peers.


Looking at the successive deployment of its solutions and the improving margins, we can say that Frontier is a good buy at the moment.

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.