Trade of the Day: Frontier Communications (FTR)

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Today, we’re opening a new bearish trade on Frontier Communications (NASDAQ:FTR).

Leading up to the passage of the Republican tax bill, investors started to punish companies with lower corporate debt ratings, as these companies will no longer be able to fully deduct the higher interest payments they make on their high-yield bonds.

This puts FTR, which recently had its credit rating downgraded once again, this time by Moody’s, in a difficult situation because the company is going to not only lose the benefits of its substantial tax deductions but also continue to struggle against its larger, investment-grade competitors.

FTR has been struggling for nearly two years as its stock has plunged from highs just below $88 to its current price just below $7.50, and we don’t think the company’s struggles are over. Wireline telecom providers are facing an uphill battle against bigger companies like Comcast (NASDAQ:CMCSA), as their legacy services continue to dwindle as more consumers switch to high-speed Internet and cable providers with more capacity.

We are looking for the stock to drop and challenge its previous low just above $6.

‘Buy to open’ the FTR February (2018) 7 Put (FTR180216P00007000) for a maximum price of $0.90.

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