On Thursday, UBS initiated coverage on shares of Frontier Communications (OTC:FTRCQ) (NASDAQ:FYBR), assigning a Buy rating and setting a price target of $33.00.
The new coverage reflects a positive outlook on the company's transition towards becoming a growing fiber provider, with expectations for fiber to make up over 65% of the company's total passings and revenue, and 75% of its EBITDA within the next three years.
The UBS analyst anticipates that Frontier's focus on fiber will result in an accelerating EBITDA growth, projecting a compound annual growth rate (CAGR) of more than 7.5% through 2026. This forecast is slightly above the consensus estimate of around 6%.
The analyst notes that while capital expenditures will likely remain high due to ongoing investments in fiber infrastructure, the company's free cash flow (FCF) is expected to improve, despite remaining negative for the time being.
Frontier Communications is expected to seek additional funding to support its growth while managing to keep its leverage between 4 to 5 times, excluding any potential relief from government initiatives like the Broadband Equity, Access, and Deployment (BEAD) program or strategic funding opportunities.
The analyst's outlook is based on the premise that the company's increasing EBITDA growth and the path to FCF break-even point, combined with the rising strategic value of fiber assets, present an attractive risk-reward scenario for investors.
The company's shift towards a more fiber-centric business model comes after years of declining performance. Fiber has now become the majority of Frontier's customer base and financials, indicating a significant turnaround in its operational focus.
The positive assessment by UBS suggests confidence in Frontier Communications' strategy and future financial performance.
In other recent news, Frontier Communications has been experiencing significant developments. Goldman Sachs (NYSE:GS) has initiated coverage on Frontier, expressing optimism about the company's strategic shift towards fiber broadband services and setting a $29.00 price target.
However, TD Cowen has revised its outlook on Frontier, reducing the stock's price target to $39 from $41, while maintaining a Buy rating.
Frontier has reported its first positive revenue growth since 2015, with fiber now making up the majority of the company's business. The company has also announced a series of strategic financial moves, including issuing approximately $750 million in secured fiber network revenue term notes and amending its revolving credit facility to increase the cap on new securitization debt to $5.5 billion.
These recent developments show Frontier's ongoing commitment to expand its fiber network and transition away from copper infrastructure. The company's strategic moves are closely watched by investors and industry analysts for their potential to shape the competitive landscape of the U.S. broadband market.
InvestingPro Insights
As Frontier Communications (NASDAQ:FYBR) garners a favorable outlook from UBS, InvestingPro data provides additional context for investors considering the company's prospects. With a market capitalization of $6.86 billion and a notable P/E ratio of 260.34, Frontier is trading at a high earnings multiple, which aligns with the UBS analyst's growth expectations. The company's revenue for the last twelve months as of Q1 2024 stands at $5.773 billion, with a slight quarterly revenue growth of 1.53%. Despite a marginal revenue decline of 0.12% over the last twelve months, Frontier maintains a robust gross profit margin of 63.54%.
InvestingPro Tips highlight that while Frontier is experiencing a high return over the last year, with a 128.02% one-year price total return, it operates with a significant debt burden and is quickly burning through cash. Additionally, Frontier's valuation implies a poor free cash flow yield, and analysts do not anticipate the company will be profitable this year. However, the company has shown strong price performance, trading near its 52-week high and delivering a solid return over the last three months. It's worth noting that Frontier does not pay dividends, focusing instead on its growth trajectory.
For investors intrigued by Frontier's strategic pivot towards fiber and its potential for growth, additional InvestingPro Tips are available, offering a deeper analysis of the company's financial health and market position. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and gain access to the full suite of tips and insights that could inform your investment decisions.
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