Frontier Communications selling itself seems unlikely - analysts
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The possibility that fiber broadband provider Frontier Communications (NASDAQ:FYBR) may sell itself amid an activist investor push from Jana Partners seems unlikely, according to a Benchmark analyst. 
"We believe this is rather unlikely in the current equity and especially rate environment, although it certainly highlights FYBRâs chronic undervaluation, as we believe it would be difficult to muster a price that is in line with the value perception of the companyâs management and board," Benchmark analyst Matthew Harrigan, who has a buy rating and $35 price target on FYBR, wrote in a note on Tuesday.
"A further albatross is the sticky dent inflicted on telecom stocks by the high-profile lead pipe replacement concerns surfacing this summer," Harrigan added.
Jana believes that Frontier's (FYBR) depressed valuation and strong position in the fiber broadband sector would make it attractive to wireless carriers and private-equity-owned assets in the sector, according to a Reuters report on Tuesday, which cited Jana's managing partner Scott Ostfeld. Ostfeld spoke at an activist investor conference in New York City on Tuesday.
A large communications company has partnered with Jana on the idea, Ostfeld told Reuters, declining to name the firm.
There's a possibility that the telecom firm could be T-Mobile (TMUS), TD Cowen analyst Greorgy Williams, who has an outperform rating and raised his price target to $39 from $34, speculated in a note on Wednesday.
"While T-Mobile is the one-scaled wireless operator, flush with Sprint synergy FCF, lacks a wireline footprint in the new era of convergence, and has shown interest in FTTH (though more recently endorsing the open access route with Tilman), we question its need to partner with Jana," Williams wrote in the note.
Williams highlighted that he agreed with Jana's view that Frontier (FYBR) is not getting the valuation the company deserves. The stock trades at 6.7x, while Consolidated Communications (CNSL) agreed to be sold to Searchlight on Monday for 9.6x, or an implied 10.8x multiple when including capital commitments, though CNSL is more copper-based and is "beset" with balance sheet and operational problems. 
"We believe there have been other entities that have been interested in a go-private transaction with Frontier in the last twelve months, however the current debt markets have been the main impediment to this transpiring," Raymond James analyst Frank Louthan, who has a strong buy rating and $37 price target on FYBR, wrote in a note on Tuesday. "We do believe some shareholders of Frontier could be agreeable to this, but as always, the devil is in the details, and it would depend on the structure."
Louthan said he doesn't believe the company needs to be taken private to reach its stated builds and funding goals.
"The bottom line: we are hard-pressed to see a go-private transaction given the share price and where interest rates are in the credit markets," Louthan added in the note.
Frontier (FYBR) is scheduled to present Q3 results on Nov. 1.

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