Morgan Stanley 'Double' Upgrades Frontier Communications

In a report published Wednesday, Morgan Stanley analysts upgraded the rating on

from Underweight to Overweight. The price target was lowered from $7 to $6. The analysts believe that the stock is attractively valued at present and offers a 30 percent total return potential. The stock has decline close to 26 percent in 2015 and is over 40 percent lower than its recent highs. "Frontier's business has faced significant pressures in recent quarters, particularly related to the integration of the Connecticut lines. We believe this should stabilize in coming quarters with improved pricing trends, potential CAF Phase II funding, easing backhaul pressures and potential bonus depreciation extensions," the analysts said. The analysts believe that the company's current dividend payout is sustainable over the medium term. This sustainability is expected to be further enhanced with the acquisition of wireline assets from

. "Management guided to a 13 percent payout ratio improvement from the Verizon deal (from 50 percent in 2014), so there could be further upside to our estimates," according to the Morgan Stanley report. Visibility into the accretion from the Verizon deal is likely to improve with the successful start of the Verizon lines financing program in the next few months.