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Frontier Communications Corporation Message Board

  • telecominvestordude Mar 12, 2013 5:09 PM Flag

    Here's how I come up with $4.75 as FTR's fair value

    - a discount rate of 3.9% (which is the best you'll do on long-term bonds these days)
    - an assumed dividend growth rate of negative 4% a year
    - an assumption that Frontier will be out of business completely in 25 years

    ... the present value of these dividends comes to $4.76, which I'll round down to $4.75 to be consistent with that other thread.

    That seems to be an extremely pessimistic set of assumptions I'm making here, but it shows how indeed Frontier can be a business in long-term decline and yet still be worth more than today's stock price.

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    • WRONG. Where did you come from. You have all the words, however the worst product. cd

      Sentiment: Buy

    • There's also that issue where he didnt work on his go ogle rate and got my goat.. Do ya think I forgot? Would you like to explain

    • The problem with your assessment is your discount rate it should be at least twice as high. There is clearly more risk with FTR than an AAA 25 year bond. That said, if the future looks this bleak than management (which should not include Maggie) can focus on expense control and keep capital investment and other expenses to a minimum. At that point the dividend can actually be raised or at least maintained over a very long period.

      I actually think you can come up with a value of around $8 if you fire the current management and Board and focus on expense management. Until that happens the current value is somewhere between $2 and $6.

      • 1 Reply to slinger_99_0
      • telecominvestordude Mar 20, 2013 11:30 AM Flag

        Regarding using a higher discount rate, Warren Buffett said this: "You can't compensate for risk by using a high discount rate."

        Yeah, I do agree that current management including the CEO should be fired. Frontier is not gaining a whole lot by making broadband expansion its growth focus, since they're not going to be able to magically solve the last mile problem, nor are they going to magically be able to outcompete the cable companies at this point in their territi\ories. In that sense Frontier is kind of following the Alaska Communications' wireline strategy, but the difference is that ACS in Alaska is competing with a cable company that neglected its broadband and capped the data, plus ACS doesn't have to come up with dividends for shareholders anymore (so it can sink all that money into capex).

        I'd rather see Frontier actually buy cablecos the way TDS is doing it, or focusing more on enterprise the way Windstream is doing it.

        Failing that, Frontier should just be looked at the way you'd look at an oil or gas royalty trust, with a slowly depleting asset but one that's going to pump out a whole heck of a lot of cash between now and the day the fixed cost structure is no longer sustainable.

        However, I have no idea what the stock price is going to do in the next 6 months or year. I just think the present value of the future dividend flows from Frontier is worth more than today's stock price.

    • I understand what you're saying, but assuming the div will decline at 4% a year, may have much to do with reality for a stock that cut the dividend by 47% last year, following a 25% cut 2 years before that. And suspect whether FTR stays in business or not will be decided long before 25 years are up.

      Sentiment: Hold

      • 1 Reply to vjpj1110
      • telecominvestordude Mar 20, 2013 11:36 AM Flag

        You have to look at the ratio of free cash flow per share, adjusted to ignore working capital changes and ignoring escrow cash flows, to the dividend each time it was cut to understand it. Every dividend cut has come when it was a ratio of below 1.0 either that quarter or the quarter preceding the cut.

        In the quarter ended 12/31/12, free cash flow per share as adjusted for the way I just described was $0.22 a share and the dividend was $0.10, making the ratio 2.2.

        In short, it could be a very long time before the dividend needs to be cut again. I think over the next 10 years a more realistic projection of annual dividend growth is actually more like -1% or -2%.

    • pcchung Mar 18, 2013 11:47 AM Flag

      The real phone company VZ is up 0.53 before lunch today and good ole FTR is down 0.03 so far. Making money with VZ is sooooo easy compared to FTR.

      Sentiment: Hold

    • If you're asking me I'd say #$%$ off. Why you come here and project yourself as an expert. Especially when you were asking us for advice? So What's your take on ALSK.. AND what's your agenda. Who do you work for. Why do you keep fishing. Mr 8 posts?

    • Nice point however you analyst guru guys go ahead and tell us what is going to happen.. Weren't you the goo gle search guy that didn't goo gle in that other thread? Do you know that the f b i is watching all of that [this is why I use bing.] If you had a business and it went out of business in twenty five years, will you come back here and tell us how that works out for you. I guess it's up to mr five posts now for you.

    • telecominvestordude Mar 12, 2013 5:13 PM Flag

      BTW, if Frontier does NOT go out of business completely in 25 years and instead just declines at 4% a year between now and the end of time, you come up with a fair value of about $5.80 a share using discounted cash flows.

      For the discount rate, 3.9% is the best you'll do with SAFE bonds, such as the Vanguard Long-Term Bond Index Fund.

      • 1 Reply to telecominvestordude
      • BTW, if Frontier does NOT go out of business completely in 25 years and instead just declines at 4% a year between now and the end of time, you come up with a fair value of about $5.80 a share using discounted cash flows."

        Not a chance -- if FTR's revenue goes down by 4% this year the $.40 divvy is history.

        Your $5.80 target would take a 40% move from here -- what would be the catalyst for a move like that?

        What happened to $4.75? You just decided you liked a bigger #?

        Thus your fair value seems to float on either. Kinda like capital loss money floating up to money heaven.

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