Frontier Share Price Plunges as Dividends Are Suspended; Chapter 11 Bankruptcy Next?

February 28, 2018 |  

Even before stock markets opened this morning, shares of Stamford, Connecticut-based Frontier Communications (FTR) were hammered. By the end of the trading day, shares of the telephone and Internet provider plunged 24-percent to close at $7.03.

The primary culprit for FTR's loss of almost one-quarter of its equity in one day was significant. FTR's board of directors decided to suspend the companies annual shareholder dividend. 

That dividend, which was $2.40 a share, would have yielded an unrealistically high return of 25.97-percent. The average annual implied dividend of the S& P 500 is 1.11-percent.

While slashing dividends was met with investor ire, not all the news for FTR is gloomy. At least one market analyst said by eliminating the dividend the company can free up cash to pay down long-term debt.

"We note the dividend cut was very much a rip-the-Band-Aid-off moment, but we believe those funds can be better spent elsewhere," Wells Fargo analyst Jennifer Fritzsche wrote in a note to clients. "We view [Frontier's] turnaround as very much a 'show me story,' and reiterate our market perform rating on the shares."   

Additionally, FRT's most recent quarterly report showed better than expected results. In the earnings report that was issued on Tuesday, FRT a narrower than expected loss on higher than forecasted revenues.

Although FTR is operating in an environment hostile to landline telephones, most of its current financial problems stem from their ill-timed 2015 acquisition of Verizon's landline operation. Although FTR took control of Verizon's operations in 14 states, it also assumed debt of $3.3 billion in debt. 

In May 2017 FTR also implemented a reserve stock split. That maneuver took FTR share prices which at the time was about $1.00 a share and at risk of being delisted from the New York Stock Exchange to $10.00. However, as evidenced by today's closing price, shares have fallen almost 30-percent from that time. 

FTR and its predecessor companies have been the dominant landline telephone provider in Elk Grove for decades and have been major corporate sponsors of community events. In light of their financial woes, FTR has withdrawn sponsorship of several community events which the City of Elk Grove had come to rely on for financial support.

Given their conitnued stock slump, losses,  shrinking marketplace, and overwhelming debt, the next stop on FTR's journey may well be in U.S. Bankruptcy Court.