Frontier’s Value Proposition in the US Telecom Space
What's Frontier’s Asset Strategy in the Verizon Transaction?
Frontier’s scale
In the previous parts of the series, we looked at certain aspects of Frontier Communications’ (FTR) acquisition of wireline assets of Verizon in Florida, Texas, and California. In this part of the series, we’ll look at some value-centric measures of Frontier and some of its peers in the US wireline telecommunications market. Let’s start with the scale of Frontier compared to some of its peers.
As you can see in the above bar graph, as of March 28, 2016, Frontier had a market capitalization of ~$6.2 billion.
In the US wireline space, this metric for Windstream (WIN) and CenturyLink (CTL) was ~$0.66 billion and ~$16.9 billion, respectively.
This metric for Verizon (VZ) and AT&T (T), the integrated US telecom players, was ~$217.9 billion and ~$240.3 billion, respectively, as of the same date.
Dividend yields of Frontier and some of its peers
Now let’s look at Frontier’s dividend yield. As of March 28, 2016, Frontier had a forward annual dividend yield of ~7.9%. The same metrics for CenturyLink and Windstream were ~6.9% and 8.3%, respectively.
The figures for AT&T and Verizon were ~4.9% and ~4.3%, respectively, as of the same date.
Enterprise multiples of Frontier and some of its peers
As of March 28, 2016, Frontier and CenturyLink had forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiples of ~5.6x and ~5.5x, respectively. As of the same date, Verizon and AT&T had EV-to-EBITDA metrics of ~7x and ~6.6x, respectively.
For a diversified exposure to select wireline telecom companies in the United States, you may consider investing in the iShares Core S&P 500 ETF (IVV). IVV held a total of ~2.4% in some of the US telecom companies at the end of December 2015.
In the final part of our series, we’ll see what Wall Street thinks about Frontier Communications.
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