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Frontier Communications to Sell Operations in Four States

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Frontier Communications Corporation FTR recently announced that it has inked a deal to sell its assets and operations in Washington, Oregon, Idaho and Montana to WaveDivision Capital, LLC and Searchlight Capital Partners, LLC. The transaction, valued at $1.352 billion in cash, is subject to regulatory approvals by the Federal Communications Commission, the U.S. Department of Justice, and the Committee on Foreign Investment in the United States.

The sale proceeds are likely to be utilized to pay off the company’s financial obligations, while strengthening its liquidity position. As of Mar 31, 2019, it had $119 million in cash and equivalents with $16,526 million of long-term debt. At the end of first-quarter 2019, Frontier Communications’ leverage ratio was 4.76:1.

As of Mar 31, 2019, the company’s operations in these four states catered to more than 350,000 residential and commercial customers. This accounted for $619 million of revenues, $272 million of adjusted EBITDA and $46 million of net income for the twelve months ended on Mar 31, 2019. The transaction is anticipated to close within one year. The company will continue to operate the business with existing products and services until the transaction closes. It has also agreed to provide certain transition services to the new ownership group following the closing.

Markedly, across these four states, Frontier Communications’ network passes 1.7 million residential and business locations, of which about 500,000 are fiber-to-the-premises capable. As of Mar 31, 2019, it served nearly 150,000 fiber broadband, 150,000 copper broadband and 35,000 video connections in these states.

Frontier Communications has long-term EPS growth expectation of 6.4%. The stock has lost 25.6% compared with the industry’s decline of 44.4% in the year-to-date period.

Additionally, Frontier Communications reiterated its financial projections for 2019. The company expects adjusted EBITDA between $3.45 billion and $3.55 billion. While capital expenditures are likely to be around $1.15 billion, cash interest expenses are projected to be about $1.48 billion. Operating free cash flow is anticipated to be $575-$675 million.

The company is poised to benefit from the healthy momentum in a number of initiatives under its transformation program in 2019, 2020 and beyond, while advancing toward its targeted $200 million in EBITDA run rate improvement by 2019 and $500 million by 2020.

Frontier Communications currently has a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader industry are Deutsche Telekom AG DTEGY, Consolidated Communications Holdings, Inc. CNSL and Global Water Resources, Inc. GWRS. While Deutsche Telekom sports a Zacks Rank #1 (Strong Buy), Consolidated Communications and Global Water carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Deutsche Telekom has long-term earnings growth expectation of 9%.

Consolidated Communications has long-term earnings growth expectation of 2%.

Global Water has long-term earnings growth expectation of 15%.

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