Goldman Sachs Reiterates Neutral Rating on Frontier Communications (FTR)

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Goldman Sachs is out with an analyst note this morning where they reiterate their Neutral rating on shares of Frontier Communications (NYSE: FTR); they have a $7.50 price target on the stock.

Goldman analysts cited a recent update to their model and valuation following the VZ line acquisition set to close July 1st. Their new pro forma revenues/adj. EBITDA (ex- integration) estimates are $5.69 bn/$2.73 bn for 2010 and $5.36 bn/$2.71 bn for 2011. Their pro forma EPS estimates for 2010-2012 are $0.46/ $0.53/$0.56. Their 12-month price target is $7.50, from $7.75 previously.

Goldman said that “Consolidation of the underperforming acquired assets causes an immediate step-up in revenue erosion for FTR (-6.3% in 2010). In addition, the combined company’s initial EBITDA margins will be significantly below those of legacy FTR (pro forma of 48.0% in 2010, 470 bp below legacy FTR).”

Analysts added, “We expect longer term EBITDA margins of 50%-plus, driven by synergy realization (we forecast $450 mn/year by 2013), and moderating revenue declines, as FTR is able to bring a more localized focus to assets that were not a primary focus inside of a much larger Verizon entity. We forecast 2011/2012 FCF of $950 mn/$921 mn, as synergies and margin expansion only partially offset continued (but moderating) revenue erosion.”