Frontier Communications Corporation (NASDAQ:FTR) shares are down more than -84.06% this year and recently decreased -7.02% or -$0.61 to settle at $8.08. Windstream Holdings, Inc. (NASDAQ:WIN), on the other hand, is down -71.90% year to date as of 12/15/2017. It currently trades at $2.06 and has returned 5.10% during the past week.
Frontier Communications Corporation (NASDAQ:FTR) and Windstream Holdings, Inc. (NASDAQ:WIN) are the two most active stocks in the Telecom Services – Domestic industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect FTR to grow earnings at a 7.30% annual rate over the next 5 years.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 29.35% for Windstream Holdings, Inc. (WIN). FTR’s ROI is 5.10% while WIN has a ROI of 4.40%. The interpretation is that FTR’s business generates a higher return on investment than WIN’s.
Cash is king when it comes to investing. FTR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.35. Comparatively, WIN’s free cash flow per share was +0.14. On a percent-of-sales basis, FTR’s free cash flow was -0.31% while WIN converted 0.48% of its revenues into cash flow. This means that, for a given level of sales, WIN is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. FTR has a current ratio of 0.70 compared to 0.80 for WIN. This means that WIN can more easily cover its most immediate liabilities over the next twelve months. FTR’s debt-to-equity ratio is 5.21 versus a D/E of 20.63 for WIN. WIN is therefore the more solvent of the two companies, and has lower financial risk.
FTR trades at a P/B of 0.18, and a P/S of 0.07, compared to a P/B of 0.73, and a P/S of 0.07 for WIN. FTR is the cheaper of the two stocks on book value basis but is expensive in terms of P/E and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. FTR is currently priced at a -41.58% to its one-year price target of 13.83. Comparatively, WIN is -20.46% relative to its price target of 2.59. This suggests that FTR is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 3.00 for FTR and 3.10 for WIN, which implies that analysts are more bullish on the outlook for WIN.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. FTR has a beta of 0.51 and WIN’s beta is 0.39. WIN’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. FTR has a short ratio of 0.07 compared to a short interest of 7.18 for WIN. This implies that the market is currently less bearish on the outlook for FTR.
Frontier Communications Corporation (NASDAQ:FTR) beats Windstream Holdings, Inc. (NASDAQ:WIN) on a total of 8 of the 14 factors compared between the two stocks. FTR is growing fastly, is more profitable, generates a higher return on investment and has lower financial risk. FTR is more undervalued relative to its price target. Finally, FTR has better sentiment signals based on short interest.