Will This Downgrade Hurt Frontier Communications (FTR) Stock Today?

Story updated at 9:50 a.m. to reflect market activity.

NEW YORK (TheStreet) -- Frontier Communications (FTR) was downgraded to "underperform" from "neutral" by DA Davidson Thursday.

Frontier fell -0.8% to $5.97 in morning trading.

The firm set a price target of $5 for the telecom company. DA Davidson said the downgrade was a valuation call as Frontier's dividend is not likely to increase.

Must read: Warren Buffett's 10 Favorite Growth Stocks

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Separately, TheStreet Ratings team rates FRONTIER COMMUNICATIONS CORP as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate FRONTIER COMMUNICATIONS CORP (FTR) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Compared to its closing price of one year ago, FTR's share price has jumped by 42.58%, exceeding the performance of the broader market during that same time frame. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • 44.89% is the gross profit margin for FRONTIER COMMUNICATIONS CORP which we consider to be strong. Regardless of FTR's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 3.40% trails the industry average.
  • FRONTIER COMMUNICATIONS CORP's earnings per share declined by 20.0% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, FRONTIER COMMUNICATIONS CORP reported lower earnings of $0.12 versus $0.14 in the prior year. This year, the market expects an improvement in earnings ($0.23 versus $0.12).
  • FTR, with its decline in revenue, slightly underperformed the industry average of 0.8%. Since the same quarter one year prior, revenues slightly dropped by 4.3%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • Although FTR's debt-to-equity ratio of 2.03 is very high, it is currently less than that of the industry average. Even though the debt-to-equity ratio is weak, FTR's quick ratio is somewhat strong at 1.07, demonstrating the ability to handle short-term liquidity needs.
  • You can view the full analysis from the report here: FTR Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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