Frontier Communications Buy Rating No Longer Supportable, Says UBS

Frontier Communications Corp (NASDAQ: FTR) shares are sinking over 12 percent Wednesday following a first quarter earnings miss and the announcement of a big annual dividend cut, from $0.42 to $0.16 per share.

UBS cut its Buy rating to Neutral and lowered its price target from $5.00 to $1.75.

“We had previously believed that management had time to execute on its turnaround strategy, benefit from synergies and sustain its dividend given manageable near-term maturities and secured debt capacity," UBS analyst Batya Levi said.

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“However, operational challenges hae been worse than expected resulting in higher declines in revenue and EBITDA. We are stepping to the sidelines until we get more visibility on execution going forward,” Levi said.

Due to weaker first quarter results, UBS lowered its 2017-2019 expected revenues by 1-2 percent and EBITDA by 2-6 percent, although maintained margins at 40 percent.

When asked when will the business turnaround, Levi replied, “After recent operational challenges, we believe it will take time for the business to show improvement and expect continued sub losses to result in ~10% yoy decline in revenues and EBITDA in 2017E. While gross adds have shown signs of improvement, churn remains elevated and competition will continue to intensify as cable improves its product offering.”

The stock traded recently at $1.68, down 12.7 percent.