Editor's Note

The communications space is increasing dominated by the big caps leaving no room for anyone else. Frontier Communications is rapidly heading for penny stock status.



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FTR - Frontier Communications - Company Profile

Frontier Communications Corporation provides communications services to residential, business, and wholesale customers in the United States. It offers broadband, video, voice, and other services and products through a combination of fiber and copper based networks to residential customers. The company also provides broadband, Ethernet, traditional circuit-based, data and optical transport, and voice services, as well as Multiprotocol Label Switching and Time Division Multiplexing services to small business, medium business, and larger enterprises, as well as sells customer premise equipment. In addition, it offers 24/7 technical support; wireless broadband services in selected markets; and frontier secure suite of products, including computer security, cloud backup and sharing, identity protection, and equipment insurance. Further, the company provides satellite TV video services; voice services, including data-based VoIP, and long distance and voice messaging services; and a package of communications services. Additionally, it offers a range of access services that allow other carriers to use facilities to originate and terminate their local and long distance voice traffic. As of December 31, 2016, it served approximately 5.4 million customers and 4.3 million broadband subscribers in 29 states. The company was formerly known as Citizens Communications Company and changed its name to Frontier Communications Corporation in July 2008. Company description from FinViz.com.

Frontier is simply being squeezed out by the competition. The CEO said with their recent earnings, they were facing "severe competition" in the telecom space. Revenue declined -12% in Q2 to $2.3 billion and missed estimates for $2.4 billion. They have missed revenue targets in 3 of the last 4 quarters. They posted an operating loss of $662 million, compared to $75 million in the year ago quarter. The loss this year was accelerated by a forced write down of goodwill for $532 million. Operating costs rose by $500 million to $2.8 billion for the quarter. The per share loss for the quarter was $1.10 and slightly better than the $1.10 analysts expected. Shares spiked temporarily but then resumed their downward trend.

Charter (CHTR), Comcast (CMCSA), AT&T (T) and Windstream (WIN) are eating their lunch. Bigger is better in the telecom space and Frontier is shrinking.

Shares are down 81% over the last year from a 52-week high of $75. On Monday they closed at a historic low. My charts only go back to 1972 and today's close was the lowest on record. I think Frontier is going to single digits. There is no light at the end of this competitive tunnel. Their only hope will be a takeout at some point. Free cash flow is shrinking from $250 to $205 million for the quarter. Liquidity is falling from $522 million to $387 million. They have a market cap of $995 million and debt of $17.8 billion. That is not a desirable picture of a takeout candidate. The more likely path is a continue slide into single digits.

Expected earnings Oct 31st.

Sell short FTR shares, currently $12.72, initial stop loss $14.15.
Alternate position: Buy Oct $11 put, currently 90 cents. No initial stop loss.



Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps more than $1.00 at the market open.