On Thursday, Frontier Communications (OTC:FTRCQ) (NASDAQ:FYBR) shares were downgraded from Buy to Neutral by MoffettNathanson, with the price target increased to $38.50 from $30.00. The adjustment follows Verizon's announcement of its intent to purchase Frontier for $38.50 in cash per share. The deal confirmation led MoffettNathanson to align the stock's target price with the acquisition price.
The transaction, expected to close in 18 months pending regulatory approval and a Frontier shareholder vote, has prompted a reevaluation of the stock's status. MoffettNathanson highlighted that the deal reduces the likelihood of a competing bid from T-Mobile, given the significant synergies Verizon expects to achieve and the hefty breakup fees involved.
Should the deal dissolve under certain conditions, Frontier could be liable to pay Verizon $320 million, while Verizon could owe Frontier $590 million.
Verizon anticipates annual cost synergies of at least $500 million by the third year post-acquisition, which, excluding undisclosed costs and potential regulatory concessions, would effectively lower the enterprise value to EBITDA multiple from approximately 9.1x to around 7.4x. These expected synergies are predicted to come from network savings, go-to-market efficiencies, reduced overhead, and other areas.
The specifics of the agreement, including the background to the deal and long-term projections, will be detailed in the forthcoming proxy statement, which stakeholders are keen to review. The details provided thus far underscore the strategic moves by Verizon and the financial implications for both companies involved in the transaction.
In other recent news, Verizon Communications (NYSE:VZ) has agreed to acquire Frontier Communications for $20 billion, a move that will expand Verizon's fiber network and add 2.2 million fiber subscribers. However, MoffettNathanson, a market research firm, has expressed skepticism about the acquisition, labeling it a "terrible idea." The firm cited Verizon's previous decision to sell most of Frontier's assets and focus on wireless services over wireline.
In addition to the acquisition, Frontier Communications has secured over $23 million in grants for the expansion of high-speed fiber broadband service in California's San Bernardino and Riverside counties. This funding will enhance internet connectivity for underserved communities in these regions.
On the financial side, Frontier reported a 2% revenue increase, reaching $1.48 billion, and a 5% growth in EBITDA during its Q2 2024 earnings call. Despite a net loss of $123 million, primarily due to non-cash items, the company's operational cash flow remained robust at $374 million.
Meanwhile, AT&T has been receiving positive attention from financial firms like Citi, Oppenheimer, and Scotiabank, following its strong second-quarter performance. These firms have upgraded their price targets for AT&T, reflecting confidence in the company's growth trajectory. These are the recent developments in the telecom industry.
InvestingPro Insights
As Frontier Communications (NASDAQ:FYBR) navigates through its acquisition by Verizon, investors and analysts are closely monitoring the company's financial health and stock performance. According to InvestingPro data, Frontier's market capitalization stands at $8.73 billion, which is significant when considering the acquisition price set by Verizon. Despite a negative P/E ratio of -92.05, reflecting challenges in profitability, the company has seen impressive short-term returns, with a one-week price total return of 35.67% and a one-year price total return of 142.05%.
InvestingPro Tips highlight that Frontier operates with a significant debt burden and short-term obligations that exceed its liquid assets, which could be factors of interest in the acquisition context. Moreover, while analysts have revised their earnings downwards for the upcoming period, the stock is trading near its 52-week high, which aligns with the increased price target set by MoffettNathanson. Notably, Frontier does not pay a dividend, which might be a consideration for income-focused investors.
For those interested in a deeper analysis, InvestingPro offers additional insights, with 13 more tips available for Frontier Communications at https://www.investing.com/pro/FYBR. These tips may provide further context to the acquisition dynamics and the company's financial trajectory as it prepares to join Verizon's portfolio.
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