FTR, Frontier Communications, reported earnings above expectations today after market close. This stock has been under significant pressure from shorts and belief the company could not get it's act together. Indeed earlier reports this year showed what is know as a legacy telecom having issues consolidating some new assets purchased from Verizon last year and enough debt issues that the company cut their dividend almost in half.
We have followed this company for some time and believed that it had shown good consolidation of other purchased assets and to our eyes was getting it's debt under control. The dividend cut was a big winner as well as it would make debt much less of an issue moving forward. To that end we took out 20000 options on FTR earlier this year in a bet we were right and obviously are quite pleased today with the earnings reports and our profits.
The earnings call today, which we listened to, made solid bullish on this stock.
Legacy telecom's are communications companies that own old wire line business mostly in rural areas. These areas have been abandoned by the big boys like AT&T and Verizon since the forward growth profile is weak and there is continuing loss of wire line business. However the one thing that investors seem to forget is that these areas where the legacy telecoms operate have few other competitors, have weak wireless service, and have US Government financial support to add internet access to areas not served currently. They piggyback the web service with television service and cheap telecom service. Yes, they continue to lose RESIDENTIAL access lines, but most of the business customers continue to use them.
FTR has a large business service business especially in the northeast United States which is going nowhere. They are adding internet access and just took a big check from the US government this week to expand that access even further. FTR is a solid company with a 10% dividend that is taking up 37% of cash flow, which is the lowest ratio in the legacy telecom area. Like all telecoms the debt, and the continuing depreciation cover much of the profit. But the cash flow and EBITDA are solid and looking better after today's report.
No this company might be the same company it is now in 20 years, it might even be consolidated with a bigger telecom, but for sure it will be here in some form as the big telecoms will not service rural areas like they do urban areas so someone has to provide this service.
With that said FTR, is up 8% today on good earnings to after hours at $4.18. You could have bought it at $3.06 earlier this year in May which is a 37% gain in about three months. This stock still looks good for a nice 10% dividend and some more capital gains as well.
WIN, a similar but larger cousin of FTR, reports earnings on August 9 could also be a good candidate here. WIN pays out a 10% or so dividend as well. Note that both FTR and to even a larger extent WIN have had significant insider buying the last quarter, which is a good signal that people who work there see a both as a good buy now.
CTL, the largest of these telecoms, has already moved up in price to around $42 from last September's lows of $32. CTL makes for a good almost blue chip hold here for a 7% dividend.
All these stocks offer higher dividend opportunities for those seeking yield and FTR and WIN offer some capital gain opportunities as well.
We currently own 20000 options on FTR at $4 per share as reported earlier in our postings. We also hold several thousand options on CTL and long several thousand shares of WIN. We eat what we cook.
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