Consolidated Communications’ share sale, fiber strategy sets it apart from other RLECs, analyst says

Money

Consolidated Communications' shares may have been under pressure—trading down 19% since closing its FairPoint acquisition—but analysts say the move to offload 3.7 million shares could work in the telco’s favor as it enhances its fiber-centric service focus. 

Citing a source close to the matter, a Bloomberg report revealed that the shares are being offered at $17.75 via Morgan Stanley.

This sale is related to a former FairPoint shareholder who is unloading their position following Consolidated's closing of the acquisition of FairPoint earlier this month. 

The $17.75 price was a 3.64% discount to yesterday’s close of trading on the Nasdaq stock exchange of $18.42 a share.

RELATED: Consolidated wraps FairPoint acquisition, becomes ninth largest domestic U.S. fiber provider

Analysts say that the sale could produce some longer term benefits for Consolidated.

“While this has clearly caused pressure in the shares, we believe “ripping off this band aid” and getting these shares sold will remove a significant overhang in CNSL's shares,” said Jennifer Fritzsche, senior analyst for Wells Fargo, in a research note.

Fritzsche added that while its independent or rural ILEC peers like Frontier have struggled, Consolidated’s focus on fiber network expansion sets it apart from the pack.

“Given its focused, fiber centric strategy—CNSL remains our favorite RLEC name,” Fritzsche said. “Such fiber focus differs from many of its RLEC peers. We continue to believe CNSL has made (and continues to make) the necessary investments in their network which allows it to hold their own vs. cable competition.”

Indeed, by purchasing FairPoint Consolidated immediately became the nation’s ninth largest fiber provider with a presence in 24 states.

Specifically, Consolidated added more than 22,000 route miles to its fiber network without any overlapping markets. The service provider’s fiber network will now span over 36,000 route miles.

Besides scaling up the overall fiber route mile count, Consolidated also grew its on-net fiber building count to 8,800 and fiber-connected towers total to 2,600.

Having this expanded set of fiber assets means that Consolidated will be able to attract a larger share of business and wholesale customers, including wireless operators that are beginning their transitions to 5G.

 “We continue to view the FRP transaction favorably,” Fritzsche said. “In our view, FRP brings in a fiber rich asset which seems to be (very much) underappreciated by the market.”