Frontier Communications was downgraded by Investing.com due to VZ takeover plans

On Monday, analysts at TD Cowen adjusted their stance on Frontier Communications (OTC:) (NASDAQ:FYBR) by switching from “Buy” to “Hold” and setting a new price target of $38.50, which represents a slight decrease from the previous $39.00. The revision comes because Frontier is to be taken over Verizon Communications Inc (NYSE:). at a purchase price of $38.50 per share. This acquisition price is approximately eight times Frontier’s estimated 2024 EBITDA.

The decision to downgrade the telecommunications company was influenced by recent developments following T-Mobile US (NASDAQ:) Inc.’s Capital Markets Day. Analysts noted a lower likelihood of a more competitive offer emerging for Frontier. According to analysts’ observations, private investors are more likely to consolidate smaller regional fiber-to-the-home (FTTH) operators before potentially selling them to larger network operators, often referred to as the Big 3.

Analysts at TD Cowen expect Verizon’s acquisition to close as originally announced and without further bidding. The transaction is expected to be completed without any material changes, which has been reflected in the readjusted stock valuation and price target for Frontier Communications.

The acquisition is a strategic move by Verizon to expand its broadband footprint. Frontier Communications, which offers a range of Internet, TV and phone services, is expected to complement Verizon’s existing offerings. The acquisition agreement and subsequent downgrade of Frontier’s stock valuation reflect the evolving landscape of the telecommunications industry, where consolidation is a recurring theme.

In other recent news, Frontier Communications (NASDAQ:FYBR) took center stage with the announcement of Verizon’s intention to acquire the company for $20 billion. The deal, which has resulted in MoffettNathanson rerating Frontier’s stock from “Buy” to “Neutral,” is expected to close in 18 months, subject to regulatory approval and a vote by Frontier shareholders.

Additionally, Frontier has received more than $23 million in grants to expand high-speed fiber broadband service in San Bernardino and Riverside counties, California. On the financial front, Frontier reported a 2% increase in revenue to $1.48 billion and EBITDA growth of 5% in its second quarter 2024 earnings release. Despite a net loss of $123 million, the company’s operating cash flow remained robust at $374 million.

Investing Pro Insights

As Frontier Communications (NASDAQ:FYBR) prepares to be acquired by Verizon, InvestingPro’s data provides additional context on the company’s financials. Despite the recent downgrade by TD Cowen, FYBR has delivered a strong return over the past year, with a one-year total price return of 132.02% according to the most recent data. This performance is consistent with the purchase price of $38.50 per share, which represents a premium to recent trading prices.

However, InvestingPro tips highlight some of the challenges the company faces. Frontier has a significant debt load and its short-term obligations exceed its liquid assets. This financial structure may have influenced the company’s decision to accept Verizon’s takeover offer. Additionally, analysts do not expect the company to be profitable this year, which could explain the 8x EBITDA multiple used in the acquisition valuation.

For investors seeking a deeper understanding of Frontier’s financial health and prospects, InvestingPro offers five additional tips beyond those mentioned here. These findings could provide valuable context for assessing the fairness of the acquisition terms and the company’s standalone potential.

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