Source : investing, Tue, 2024/10/8
On Monday, analysts at TD Coin adjusted their stance toward Frontier Communications (NASDAQ:FYBR), changing their rating from “buy” to “hold” and setting a new target price of $38.50, a slight decrease from the previous price of $39.00. The adjustment comes as Verizon Communications nears the acquisition of Frontier at a buy price of $38.50 per share. This acquisition price is equivalent to about 8 times EBIT. Frontier estimated depreciation and amortization (EBITDA) for 2024.
The decision to downgrade the telecom company was influenced by recent developments following T-Mobile US Inc. Capital Markets Day.Analysts pointed to a low likelihood of a higher competitor bid for Frontier. According to analysts’ observations, private investors tend to merge regional small fiber operators before their potential sale to larger carriers, often referred to as the “Big Three.”
TD Coin analysts expect Verizon Communications to complete the acquisition as initially announced, without facing additional competitive bidding. Analysts consider that the transaction will proceed without significant changes. This assumption influenced the equity rating and the newly adjusted target price of Frontier Communications.
The acquisition is a strategic move by Verizon Communications, positioning itself to expand broadband services. Frontier Communications will complement Verizon Communications’ existing offerings, enhancing its range of internet, television, and telephone services.
The acquisition agreement and subsequent downgrade of Frontier shares reflect the evolving landscape of the telecommunications industry, where the merger is a recurring theme.
In other recent news, Frontier Communications (NASDAQ:FYBR) has been the focus of discussion with the announcement of Verizon Communications’ intention to acquire the company for $20 billion. The transaction, which led to the revaluation of Frontier shares by MoffettNathanson from “buy” to “neutral”.
is expected to close within 18 months subject to regulatory approval and a vote by Frontier shareholders.
In addition, Frontier has received more than $23 million in grants to expand its 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 5% growth in earnings before interest, tax, depreciation and amortization during the 2024 Q2 earnings call. Despite a net loss of $123 million, the company’s operating cash flow remained strong at $374 million.
InvestingPro Insights
With Frontier Communications (NASDAQ:FYBR) preparing to be acquired by Verizon Communications.
InvestingPro data provides additional context for the company’s financial position. Despite the recent downgrade by TDCoen, FYBR showed A strong return over the past year.
with a one-year total price return of 132.02% according to the latest data.
This performance is in line with the takeover price of $38.50 per share,.
However, InvestingPro’s advice highlights some of the challenges facing the company. Frontier operates with a large debt burden, and its short-term liabilities exceed liquid assets. This financial structure may have influenced the company’s decision to accept the takeover offer from Verizon Communications. In addition, analysts do not expect the company to be profitable this year.
which may explain the 8x EBITDA multiplier used in the acquisition valuation.
For investors seeking a deeper understanding of Frontier’s financial health and future prospects.
InvestingPro offers 5 additional tips beyond those listed here. These insights can provide valuable context for assessing the fairness of the terms of the acquisition and the potential of the independent company.
