By Sam Boughedda
Frontier Communications (NASDAQ:FYBR) "premium valuation" has resulted in Morgan Stanley downgrading the stock to Underweight from Equal-Weight, cutting the price target to $19 from $23 per share.
Analysts said the firm made the decision to cut the stock based on Frontier's premium to telecommunications peers, rising risks to Fiber growth targets due to increasing competition, and recent plans for a slower fiber expansion potentially delaying positive free cash flow generation.
"There are three main drivers of our downgrade: 1) Frontier shares trade at a premium to Telco peers after recent outperformance, 2) We see rising risks to Fiber growth targets due to increasing competition from FWA and Cable providers, and 3) Recent plans for a slower expansion of Fiber construction could push out positive free cash flow generation until 2027 or beyond as leverage continues to ramp," the analysts wrote, adding that the main catalysts they are focusing on include fiber adds, ARPUs, and ongoing funding actions.
"Frontier's stock is down just ~7% this year, which compares to a greater than 50% drop for Lumen and a decline of 40%+ for Uniti and Consolidated," added analysts. "Frontier now trades at a significant premium to wireline peers as well as versus AT&T and Verizon, which both offer 6%+ dividend yields."