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The Zacks Analyst Blog Highlights: Frontier Communications, AT&T, CenturyLink, Verizon Communications and Texas Capital Bancshares

CHICAGO, Oct. 10, 2012 /PRNewswire/ -- announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Frontier Communications Corporation (Nasdaq:FTR), AT&T, Inc. (NYSE:T), CenturyLink, Inc. (NYSE:CTL), Verizon Communications Inc. (NYSE:VZ) and Texas Capital Bancshares Inc. (Nasdaq:TCBI).


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Here are highlights from Tuesday's Analyst Blog:

Frontier Launches Product with AT&T

Frontier Communications Corporation (Nasdaq:FTR) in collaboration with AT&T, Inc. (NYSE:T) has launched new voice and data services. Frontier's customers can now enjoy AT&T's mobile broadband network along with wireless devices and applications as a part of Frontier's bundled services.

The services launched are in accordance with the three year agreement that took place in November 2011 between Frontier and AT&T. Under the terms of the agreement, Frontier's customers would be provided with an access to AT&T's wireless broadband services that included access to over 29,000 AT&T's Wi-Fi Hot Spots. Further, the agreement offered Frontier's customers a variety of AT&T smartphones, tablets and applications and use of 4G network.

We expect that Frontier's tie up would undertake sales of AT&T's products over the next three years and support a strong portfolio of broadband, voice and satellite TV services. The deal would also fuel subscriber growth while retaining the old customer base. It would also boost Frontier's competitive position against CenturyLink, Inc. (NYSE:CTL) which has a similar deal with another tier 1 company – Verizon Communications Inc. (NYSE:VZ).

Apart from the AT&T deal, Frontier also made a lucrative agreement with Verizon to acquire 4.8 million access lines in 2009. In April this year, Frontier completed the transfer of Verizon's assets from 14 rural states, positioning itself as the largest rural telecommunications company in the U.S. and fifth largest incumbent local exchange carrier (ILEC). It is anticipated that these conversions would boost earnings and provide cost synergies of approximately $650 million by the end of 2012.

Overall, Frontier is progressing well in its profitability enhancement through lucrative deals, cash flow management and customer retention and wins, new product deployments as well as broadband expansion.

However, intense competition, a highly leveraged balance sheet and regulatory pressure may limit the earnings potential of the company.

We maintain our long-term Neutral recommendation supported by a Zacks #3 Rank (Hold).

Outperform on Texas Capital

We have reaffirmed our long term Outperform recommendation on Texas Capital Bancshares Inc. (Nasdaq:TCBI), based on its business model that remains a chief growth driver. In addition, the gain in market share from its competitors and organic growth is impressive.

Texas Capital reported second-quarter 2012 operating earnings of 76 cents per share, surpassing the Zacks Consensus Estimate by a nickel. The results were significantly ahead of the prior-year quarter's earnings of 44 cents per share.

Quarterly results of Texas Capital benefited from an elevation in the top line aided by an augmentation in both net interest income as well as non-interest income. However, it was partially offset by higher expenses.

Following a community banking model, Texas Capital strives to attract local business owners and individuals, and thereby creates an above-average retention ratio. The company has grown significantly since its inception, partly based on its ability to hire local lenders from its national competitors.

Moreover, quite unlike its peers, Texas Capital continued to experience growth in loans and deposits over the last five years. In the midst of a slowing economy in Texas, we believe that this growth has stemmed from a gain in market share from its economizing competitors who struggled against Texas Capital's relationship-based model.

Though Texas Capital's efforts to hire experienced bankers and expand its presence are encouraging, the resultant growth in expenses partly offset the incremental effects of business expansion. While this remains a concern, we believe that with an eventual improvement in the Texan economy, the company would be poised to experience a further increase in earnings.

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