Frontier Communications Corp. (NASDAQ: FTR) reported its second-quarter financial results Monday before the markets opened. The company has $0.03 in earnings per share (EPS) on $1.37 billion in revenue, compared to Thomson Reuters consensus estimates of $0.03 in EPS on $1.36 billion in revenue. In the same period of the previous year, the company posted EPS of $0.05 and revenue of $1.15 billion.

In the second quarter, total residential revenue was flat at $615 million, compared to $617 million in the first quarter. At the same time, total business revenue was $621 million, up from $616 million in the first quarter.

At the end of the quarter, the company had 3.18 million residential customers and 299,000 business customers, representing a net loss of 0.6% in customers across the board. At the same time, Frontier had 2.41 million broadband customers and 569,500 video customers.

The company updated guidance for the 2015 full year to take into consideration its acceptance of the Federal Communications Commission’s CAF II subsidy program. Frontier expects to have free cash flow in the range of $825 million to $865 million and for capital expenditures to be $700 million to $750 million. There are consensus estimates of $0.08 in EPS on $5.44 billion in revenue for the full year.

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Dan McCarthy, president and CEO of Frontier, commented on earnings:

On the operational front, we achieved a sequential increase in customer revenue, reflecting improved trends in the legacy Frontier business, and a stable performance in Connecticut. These strong revenue results reflect solid execution in both the residential and business segments, and are a result of substantial initiatives to enhance our product offerings and improve the customer experience. We continued our track record of strong broadband net additions, with 29,200 this quarter, representing our tenth consecutive quarter of broadband share gains. We are building tremendous momentum in the business and the plans and programs we are implementing for the future.

Frontier had $1.25 billion in cash and cash equivalents at the end of the second quarter, compared to $682 million at the end of the 2014 full year.

Merrill Lynch issued a report just after the earnings were released and the team of David Barden, Stephen Douglas and Joshua Frantz was on the call. Also worth mentioning is that over the weekend Frontier was picked by this same team to potentially double. Merrill Lynch has a price objective of $9.00, which is the highest of all analysts on Wall Street.

Frontier announced in February that it would acquire Verizon’s wireline business in California, Florida and Texas for $10.54 billion less $600 million in assumed debt. The brokerage firm believes this is a good deal for Frontier for a few reasons:

• It is accretive to valuation, cash and growth on day one.
• The deal provides incremental synergy upside opportunities.
• This acquisition increases the likelihood for future dividend increases.

Merrill Lynch’s price objective of $9.00 is based on its comparable dividend yield and multiples analyses based on estimates for the company pro forma for its acquisition of Verizon’s wireline assets in California, Florida and Texas. This price objective results in a yield of 4.7%.

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According to the firm:

Dividend payments are the core value driver for Frontier and risk perceptions about the stability of these dividends will have a bearing on stock performance. Other risks to our price objective are acquisition execution and integration risks, and the sensitivity to interest rate movements.

Shares of Frontier were up 9.4% to $5.17 Monday afternoon. The stock has a consensus analyst price target of $6.58 and a 52-week trading range of $4.19 to $8.46.

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