What: Shares of mostly rural telecom Frontier Communications fell a dividend-adjusted 23% in May, according to S&P Capital IQ data. The drop put an abrupt end to Frontier's recent surge. Adjusted for reinvested dividends, the stock is now trading 6% lower year over year and missing out on the S&P 500 index's 11% gain.
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So what: In early May, Frontier shares took an 8% overnight dive as the company reported weak first-quarter results with a side order of unchanged cash flow guidance. The company did not update its outlook on sales or earnings.
Now what: Frontier's plunge didn't stop there despite a flurry of analyst upgrades urging investors to take advantage of the sudden discount. The company is digesting one major acquisition in its market and preparing for an even larger one, and investors seem more nervous about these billion-dollar deals than the Wall Street crew is. Frontier has a history of making market deals for a quick revenue boost, but without converting the higher sales into earnings and cash flow.
The company is remaking itself as a high-speed Internet service provider, but it's a costly and difficult transformation. Buying Frontier today could indeed lock in generous share price discounts, as analysts are suggesting, but the low valuation is tied to heaps of market risk.
The article Why Frontier Communications Corp. Fell 25% in May originally appeared on Fool.com.
Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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