It’s been a mediocre week for Frontier Communications Corporation (NASDAQ:FTR) shareholders, with the stock dropping 15% to US$0.78 in the week since its latest third-quarter results. Revenues of US$2.0b arrived in line with expectations, although losses per share were US$3.31, an impressive 504% smaller than what broker models predicted. Earnings are an important time for investors, as they can track a company’s performance, look at what top analysts are forecasting for next year, and see if there’s been a change in sentiment towards the company. With this in mind, we’ve gathered the latest forecasts to see what analysts are expecting for next year.
After the latest results, the consensus from Frontier Communications’s nine analysts is for revenues of US$7.7b in 2020, which would reflect a perceptible 7.5% decline in sales compared to the last year of performance. Losses are forecast to balloon 96% to US$2.10 per share. Before this latest report, the consensus had been expecting revenues of US$7.7b and US$1.79 per share in losses. So there’s definitely been a decline in analyst sentiment after the latest results, noting the substantial drop in new EPS forecasts.
As a result, there was no major change to the consensus price target of US$0.88, with analysts implicitly confirming that the business looks to be performing in line with expectations, despite higher forecast losses. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. Currently, the most bullish analyst values Frontier Communications at US$1.50 per share, while the most bearish prices it at US$0.50. With such a wide range in price targets, analysts are almost certainly baking in outcomes as diverse as total success and probable failure in the underlying business. With this in mind, we wouldn’t assign too much meaning to the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Zooming out to look at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up both against past performance, and against industry growth estimates. We would highlight that sales are expected to reverse, with the forecast 7.5% revenue decline a notable change from historical growth of 13% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same market are forecast to see their revenue grow 1.0% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining – analysts also expect Frontier Communications to grow slower than the wider market.
The Bottom Line
The most obvious conclusion is that analysts made no changes to their forecasts for a loss next year. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations – although our data does suggest that Frontier Communications’s revenues are expected to perform worse than the wider market. The consensus price target held steady at US$0.88, with the latest estimates not enough to have an impact on analysts’ estimated valuations.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. We have estimates – from multiple Frontier Communications analysts – going out to 2023, and you can see them free on our platform here.
It might also be worth considering whether Frontier Communications’s debt load is appropriate, using our debt analysis tools on the Simply Wall St platform, here.
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