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$FTR. Post Earnings, Cross Capital Structure Opportunities

Summary

$FTR has been one of many telco debacles

Recent Earnings showed some real improvement along with disapppintments

The bonds and preferred on their lows appear to be buys, the stock is a speculative long. I have not owned until post Earnings, but now is a good entry point.

There are many ways to play FTR. Long bonds and preferred, short or long  stock against or with a bond long.

The company pays a massive .60 a quarter dividend which means that you will get almost 10% of your money back in one month.

The short interest is almost 50% of the float so any good news or even just a price reversal could trigger a violent move upward.

Management has burned credibility. That said, there is a lot of growth and need for high speed bandwidth and FTR has a lot of customers and fibre, while managing the copper wind down. The Company should probably merge with CTL.

The quarter was broadly in line with the low end of expectations and customer churn was better than expected, which is the most important metric right now. The dividend should probably reduced to by at least 50% even though it is covered for a few years and maybe forever with the cash diverted to buying debt and preferred at a discount.

With about half the float sold short and stock down on a “miss” but fairly in line qtr. and better churn, it’s probably not a bad short term spec trade here. The rating agency downgrades are also noise as the debt is already trading at distressed levels. The 11% of 2025 bonds trade in the high 70s (a 15 to 16% ytw) are also a decent risk reward. I would buy the bonds and stock on 50/50ratio. You get mezzanine yields with an equity kicker.

Disclosure: I am/we are long FTR.

Additional disclosure: Positions can and do change without notice or warning.