Shorting Frontier Communications Corp on Its Downward Spiral

Small cap telecommunications stock Frontier Communications Corp (NASDAQ: FTR) is thetenth most shorted stock on theNASDAQ with short interest of 42.07% according to Highshortinterest.com. Frontier Communications Corp is a leader in providing communications services to urban, suburban and rural communities in 29 states. The Company offers a variety of services to residential customers over its fiber-optic and copper networks, including video, high-speed internet, advanced voice, and Frontier Secure庐 digital protection solutions while Frontier Business offers communications solutions to small, medium, and enterprise businesses.

A technical chart for Frontier Communications Corp shows shares falling for most of last year:

Shares of Frontier Communications Corp have moved steadily downward since the company’s April 2016 acquisition of Verizons California, Texas and Florida wireline assets for $10.54 billion failed to produce the results expected by the Company and investors. Shares crashed even further in November beginning with an earnings report that had a flat top line and a much bigger loss on the bottom line. Merrill Lynch then cut their price target on the stock from $19 to $4 per share saying that the huge dividend yield may not besustainable.

Traditional wireline stocks like Frontier Communications Corp are generally in trouble from higher-capacity network operator competitors andare burdened with debt-laden capital structures. They could also see further technology disruption. In mid-December, Barclays’ Amir Rozwadowski wrote:

In our view, traditional wireline providers will continue to face an uphill battle regardless of end market. This past year has been particularly challenging. YTD, companies have reported accelerating y/y losses in legacy services and lower than expected growth in strategic revenue growth initiatives. While operators continue to speak optimistically about the current demand backdrop, the lack of financial flexibility (i.e. weak FCF generation, high debt levels and dividend commitments), will make the process of transitioning their businesses towards more favorable growth areas difficult, in our view.

Thus, the best-case scenario forcompanies like Frontier Communications Corp is find ways to loose less money to break evenwhile trying to maintain customer count.

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