Frontier Downgraded By Citi On Post-Verizon-Deal Synergies
Citigroup downgraded Frontier Communications ( FTR ) saying synergies expected from its acquisition of residential lines in three states from Verizon Communications ( VZ ) may fall short of consensus estimates. Verizon’s sale of wireline assets in California, Florida and Texas for $10.5 billion to Frontier is expected to close by March 31. Verizon, No. 4 on the latest IBD Big Cap 20 list of top-performing big-cap stocks, is aiming to strengthen its balance sheet ahead of an auction of radio spectrum controlled by local TV stations, which is slated to begin this month. Verizon, which acquired AOL last year for $4.4 billion, also has stated interest in acquiring parts of Yahoo ’s ( YHOO ) Internet business. Citigroup analyst Michael Rollins on Wednesday lowered his rating on Frontier to sell from neutral. “We are lowering our pro-forma OIBDA (operating income before interest tax, depreciation and amortization) outlook for Frontier,” wrote Rollins. “Our study of the company’s last two acquisitions suggests net synergy realization is much lower than the guided gross synergy figures. We do not think the emerging consensus is discounting the guided synergy contributions enough.” Frontier stock was up 21% in 2016 through Tuesday, though it has a mediocre IBD composite rating of 68. But shares were down more than 5%, near 5.30, in early trading in the stock market today . AT&T ( T ), No. 2 on the IBD Big Cap 20 and an IBD Leaderboard stock, is the highest-rated phone company in IBD’s Telecom Services-Integrated group. AT&T’s cash flow has been bolstered by its acquisition of satellite TV broadcaster DirecTV. Frontier will assume $600 million in debt as part of the deal Verizon deal, involving former GTE assets in California, Florida and Texas. In 2010, Verizon sold Frontier 4 million phone lines in 14 states for $5.3 billion. Frontier in 2013 acquired AT&T’s wireline assets in Connecticut for $2 billion in cash. Both AT&T and Verizon have been shedding residential lines as well as noncore assets such as cellphone towers. Verizon stock was up a fraction in early trading Wednesday, near 53 and within range of a 51.30 buy point first touched Feb. 25. Image provided by Shutterstock.