Bernstein Upgrades Frontier Amid Proposed Verizon Deal

In a report published Tuesday, Bernstein analyst Paul de Sa upgraded the rating on

from Market Perform to Outperform, with a $6 price target, to reflect the quarterly results and the proposed acquisition of wireline assets from

. The analyst expects the acquisition of Verizon's wireline assets in Florida, California and Texas to be completed in 1H16. The analyst also believes that "there is more stability to the business than is reflected in quarter-to-quarter reporting." The recent downward pressure on Frontier's stock, which was driven by the disappointing 1Q15 results in the recently acquired territory in Connecticut as well as the uncertainties related to the timing and structure of the capital raise for the VSTO acquisition, is expected to ease with improvements in the operating performance during 2Q15 and 3Q15, along with completion of the deal financing by year-end 2015. "In addition, we believe there is upside from Connect America Fund Phase II (CAF II) subsidies, which represents ~$130m of annual incremental cash that the company will start to receive in 3Q15. Finally, we note that even if the recovery in the stock price takes longer than we expect, there is little risk to the current dividend," de Sa added.