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Frontier Communications (FTR): What's Up in Q1 Earnings?

Frontier Communications Corporation FTR is slated to release first-quarter 2016 results on May 3, before the market opens.

In the last reported quarter, the company’s earnings missed the Zacks Consensus Estimate by a huge 266.67%. However, the company has delivered positive earnings surprises in three of the four trailing quarters, with an average beat of 164.27%. Let’s see how things are shaping up for this announcement.

Factors Likely to Influence this Quarter

Frontier’s security solutions division, Frontier Secure, has been a solid source of growth for the company. The division witnessed 141% growth in operating income at the end of the fourth quarter of 2015 and its subscriptions made a significant contribution to the Average Revenue per Customer (ARPC) for the company. Moreover, it has partnered with DistiNow to distribute its security solutions, which we believe can generate further revenues for Frontier.

Recently, Frontier launched its latest line of services branded as ‘Vantage’ – a premium digital platform to deliver HD TV, ultra-fast broadband and enhanced Voice over Internet Protocol (VoIP) services. The services will be made available to customers as Vantage TV, Vantage Internet, and Vantage Voice, respectively. With the launch of the Vantage brand, Frontier will join the likes of AT&T Inc (T) and Comcast Corp. (CMCSA), which have witnessed success with their respective U-Verse and Xfinity brands. We believe that with the introduction of a premium brand, the company can maintain sustainable broadband subscriber growth.

Also, Frontier is leaving no stones unturned in deriving benefits from the growing Business Service Segment. In particular, Frontier has been targeting the Small and Medium Businesses (SMBs). It has been enhancing its Ethernet capabilities lately and eyeing the retention of SMB customers with attractive plans. However, the persistent decline in the residential voice segment is a major headwind.

Earnings Whispers

Our proven model does not conclusively show that Frontier Communications is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here, as elaborated below:

Zacks ESP:Frontier Communications has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and Zacks Consensus Estimate are pegged at a loss of 9 cents.

Zacks Rank:Frontier Communications has a Zacks Rank #3 which increases the predictive power of ESP. However, we need to have a positive ESP to be confident of an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

A Stock to Consider

Here is a company you may consider, as our model shows it has the right combination of elements to post an earnings beat this quarter:

Yelp Inc. (YELP), with Earnings ESP of +18.75% and a Zacks Rank #3.

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FRONTIER COMMUN (FTR): Free Stock Analysis Report
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