Intrinsic value of Frontier Communications - FTR

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$1.17

  Intrinsic Value

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  Value-price divergence*

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$1.17

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of FTR stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  59.54
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  8,896
  14,234
  21,991
  32,887
  47,718
  67,323
  92,554
  124,234
  163,128
  209,905
  265,128
  329,228
  402,513
  485,164
  577,249
  678,743
  789,541
  909,484
  1,038,381
  1,176,020
  1,322,196
  1,476,717
  1,639,422
  1,810,189
  1,988,938
  2,175,642
  2,370,328
  2,573,077
  2,784,024
  3,003,360
  3,231,333
Variable operating expenses, $m
 
  12,326
  19,044
  28,480
  41,324
  58,302
  80,152
  107,587
  141,268
  181,778
  229,601
  285,112
  348,576
  420,152
  499,898
  587,791
  683,742
  787,614
  899,238
  1,018,433
  1,145,022
  1,278,837
  1,419,740
  1,567,623
  1,722,420
  1,884,106
  2,052,704
  2,228,284
  2,410,964
  2,600,910
  2,798,334
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  7,994
  12,326
  19,044
  28,480
  41,324
  58,302
  80,152
  107,587
  141,268
  181,778
  229,601
  285,112
  348,576
  420,152
  499,898
  587,791
  683,742
  787,614
  899,238
  1,018,433
  1,145,022
  1,278,837
  1,419,740
  1,567,623
  1,722,420
  1,884,106
  2,052,704
  2,228,284
  2,410,964
  2,600,910
  2,798,334
Operating income, $m
  902
  1,907
  2,947
  4,407
  6,394
  9,021
  12,402
  16,647
  21,859
  28,127
  35,527
  44,117
  53,937
  65,012
  77,351
  90,951
  105,798
  121,871
  139,143
  157,587
  177,174
  197,880
  219,683
  242,565
  266,518
  291,536
  317,624
  344,792
  373,059
  402,450
  432,999
EBITDA, $m
  2,933
  3,450
  5,331
  7,972
  11,567
  16,319
  22,435
  30,114
  39,542
  50,881
  64,267
  79,805
  97,569
  117,604
  139,925
  164,527
  191,385
  220,459
  251,703
  285,067
  320,500
  357,956
  397,396
  438,790
  482,119
  527,376
  574,568
  623,714
  674,847
  728,015
  783,275
Interest expense (income), $m
  1,467
  1,528
  2,790
  4,622
  7,196
  10,698
  15,329
  21,288
  28,770
  37,956
  49,004
  62,047
  77,186
  94,495
  114,016
  135,765
  159,736
  185,904
  214,233
  244,676
  277,184
  311,708
  348,203
  386,632
  426,964
  469,181
  513,277
  559,259
  607,145
  656,967
  708,770
Earnings before tax, $m
  -623
  380
  157
  -215
  -802
  -1,677
  -2,927
  -4,641
  -6,911
  -9,829
  -13,477
  -17,930
  -23,250
  -29,483
  -36,664
  -44,813
  -53,937
  -64,033
  -75,090
  -87,089
  -100,010
  -113,828
  -128,521
  -144,066
  -160,446
  -177,645
  -195,653
  -214,467
  -234,085
  -254,516
  -275,772
Tax expense, $m
  -250
  102
  42
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -373
  277
  114
  -215
  -802
  -1,677
  -2,927
  -4,641
  -6,911
  -9,829
  -13,477
  -17,930
  -23,250
  -29,483
  -36,664
  -44,813
  -53,937
  -64,033
  -75,090
  -87,089
  -100,010
  -113,828
  -128,521
  -144,066
  -160,446
  -177,645
  -195,653
  -214,467
  -234,085
  -254,516
  -275,772

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  522
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  29,013
  45,621
  70,484
  105,408
  152,942
  215,779
  296,647
  398,187
  522,845
  672,774
  849,768
  1,055,219
  1,290,107
  1,555,012
  1,850,158
  2,175,457
  2,530,579
  2,915,014
  3,328,143
  3,769,295
  4,237,807
  4,733,067
  5,254,559
  5,801,886
  6,374,800
  6,973,213
  7,597,206
  8,247,041
  8,923,153
  9,626,155
  10,356,835
Adjusted assets (=assets-cash), $m
  28,491
  45,621
  70,484
  105,408
  152,942
  215,779
  296,647
  398,187
  522,845
  672,774
  849,768
  1,055,219
  1,290,107
  1,555,012
  1,850,158
  2,175,457
  2,530,579
  2,915,014
  3,328,143
  3,769,295
  4,237,807
  4,733,067
  5,254,559
  5,801,886
  6,374,800
  6,973,213
  7,597,206
  8,247,041
  8,923,153
  9,626,155
  10,356,835
Revenue / Adjusted assets
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
  0.312
Average production assets, $m
  13,600
  7,715
  11,919
  17,825
  25,863
  36,489
  50,164
  67,335
  88,415
  113,769
  143,699
  178,442
  218,162
  262,959
  312,869
  367,878
  427,931
  492,941
  562,802
  637,403
  716,630
  800,381
  888,567
  981,122
  1,078,004
  1,179,198
  1,284,718
  1,394,608
  1,508,941
  1,627,821
  1,751,382
Working capital, $m
  -788
  -1,509
  -2,331
  -3,486
  -5,058
  -7,136
  -9,811
  -13,169
  -17,292
  -22,250
  -28,104
  -34,898
  -42,666
  -51,427
  -61,188
  -71,947
  -83,691
  -96,405
  -110,068
  -124,658
  -140,153
  -156,532
  -173,779
  -191,880
  -210,827
  -230,618
  -251,255
  -272,746
  -295,107
  -318,356
  -342,521
Total debt, $m
  18,070
  32,070
  53,129
  82,710
  122,971
  176,194
  244,689
  330,693
  436,278
  563,269
  713,183
  887,200
  1,086,149
  1,310,524
  1,560,513
  1,836,041
  2,136,829
  2,462,446
  2,812,366
  3,186,022
  3,582,852
  4,002,337
  4,444,040
  4,907,627
  5,392,885
  5,899,740
  6,428,263
  6,978,673
  7,551,339
  8,146,783
  8,765,669
Total liabilities, $m
  24,494
  38,641
  59,700
  89,281
  129,542
  182,765
  251,260
  337,264
  442,849
  569,840
  719,754
  893,771
  1,092,720
  1,317,095
  1,567,084
  1,842,612
  2,143,400
  2,469,017
  2,818,937
  3,192,593
  3,589,423
  4,008,908
  4,450,611
  4,914,198
  5,399,456
  5,906,311
  6,434,834
  6,985,244
  7,557,910
  8,153,354
  8,772,240
Total equity, $m
  4,519
  6,980
  10,784
  16,127
  23,400
  33,014
  45,387
  60,923
  79,995
  102,934
  130,015
  161,449
  197,386
  237,917
  283,074
  332,845
  387,179
  445,997
  509,206
  576,702
  648,384
  724,159
  803,948
  887,689
  975,344
  1,066,902
  1,162,373
  1,261,797
  1,365,242
  1,472,802
  1,584,596
Total liabilities and equity, $m
  29,013
  45,621
  70,484
  105,408
  152,942
  215,779
  296,647
  398,187
  522,844
  672,774
  849,769
  1,055,220
  1,290,106
  1,555,012
  1,850,158
  2,175,457
  2,530,579
  2,915,014
  3,328,143
  3,769,295
  4,237,807
  4,733,067
  5,254,559
  5,801,887
  6,374,800
  6,973,213
  7,597,207
  8,247,041
  8,923,152
  9,626,156
  10,356,836
Debt-to-equity ratio
  3.999
  4.590
  4.930
  5.130
  5.260
  5.340
  5.390
  5.430
  5.450
  5.470
  5.490
  5.500
  5.500
  5.510
  5.510
  5.520
  5.520
  5.520
  5.520
  5.520
  5.530
  5.530
  5.530
  5.530
  5.530
  5.530
  5.530
  5.530
  5.530
  5.530
  5.530
Adjusted equity ratio
  0.140
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -373
  277
  114
  -215
  -802
  -1,677
  -2,927
  -4,641
  -6,911
  -9,829
  -13,477
  -17,930
  -23,250
  -29,483
  -36,664
  -44,813
  -53,937
  -64,033
  -75,090
  -87,089
  -100,010
  -113,828
  -128,521
  -144,066
  -160,446
  -177,645
  -195,653
  -214,467
  -234,085
  -254,516
  -275,772
Depreciation, amort., depletion, $m
  2,031
  1,543
  2,384
  3,565
  5,173
  7,298
  10,033
  13,467
  17,683
  22,754
  28,740
  35,688
  43,632
  52,592
  62,574
  73,576
  85,586
  98,588
  112,560
  127,481
  143,326
  160,076
  177,713
  196,224
  215,601
  235,840
  256,944
  278,922
  301,788
  325,564
  350,276
Funds from operations, $m
  1,710
  1,820
  2,498
  3,350
  4,371
  5,621
  7,106
  8,826
  10,772
  12,925
  15,263
  17,758
  20,383
  23,109
  25,910
  28,763
  31,649
  34,555
  37,471
  40,391
  43,316
  46,248
  49,193
  52,158
  55,155
  58,195
  61,290
  64,455
  67,703
  71,048
  74,505
Change in working capital, $m
  44
  -566
  -822
  -1,155
  -1,572
  -2,078
  -2,674
  -3,358
  -4,123
  -4,958
  -5,854
  -6,795
  -7,768
  -8,761
  -9,761
  -10,758
  -11,745
  -12,714
  -13,663
  -14,590
  -15,495
  -16,379
  -17,247
  -18,101
  -18,947
  -19,791
  -20,637
  -21,491
  -22,360
  -23,250
  -24,165
Cash from operations, $m
  1,666
  -2,432
  3,321
  4,505
  5,943
  7,699
  9,781
  12,185
  14,894
  17,883
  21,116
  24,553
  28,151
  31,870
  35,671
  39,521
  43,394
  47,269
  51,134
  54,981
  58,811
  62,627
  66,439
  70,259
  74,102
  77,985
  81,927
  85,946
  90,063
  94,298
  98,670
Maintenance CAPEX, $m
  0
  -964
  -1,543
  -2,384
  -3,565
  -5,173
  -7,298
  -10,033
  -13,467
  -17,683
  -22,754
  -28,740
  -35,688
  -43,632
  -52,592
  -62,574
  -73,576
  -85,586
  -98,588
  -112,560
  -127,481
  -143,326
  -160,076
  -177,713
  -196,224
  -215,601
  -235,840
  -256,944
  -278,922
  -301,788
  -325,564
New CAPEX, $m
  -1,401
  -2,897
  -4,204
  -5,906
  -8,038
  -10,626
  -13,675
  -17,171
  -21,080
  -25,354
  -29,930
  -34,743
  -39,720
  -44,797
  -49,910
  -55,009
  -60,053
  -65,010
  -69,862
  -74,601
  -79,227
  -83,751
  -88,186
  -92,555
  -96,882
  -101,194
  -105,520
  -109,890
  -114,333
  -118,881
  -123,561
Cash from investing activities, $m
  -11,259
  -3,861
  -5,747
  -8,290
  -11,603
  -15,799
  -20,973
  -27,204
  -34,547
  -43,037
  -52,684
  -63,483
  -75,408
  -88,429
  -102,502
  -117,583
  -133,629
  -150,596
  -168,450
  -187,161
  -206,708
  -227,077
  -248,262
  -270,268
  -293,106
  -316,795
  -341,360
  -366,834
  -393,255
  -420,669
  -449,125
Free cash flow, $m
  -9,593
  -6,292
  -2,427
  -3,785
  -5,660
  -8,100
  -11,192
  -15,019
  -19,653
  -25,153
  -31,568
  -38,930
  -47,258
  -56,559
  -66,831
  -78,062
  -90,235
  -103,327
  -117,316
  -132,180
  -147,897
  -164,449
  -181,823
  -200,009
  -219,004
  -238,809
  -259,433
  -280,887
  -303,192
  -326,371
  -350,455
Issuance/(repayment) of debt, $m
  1,487
  14,510
  21,059
  29,581
  40,261
  53,223
  68,495
  86,004
  105,585
  126,990
  149,914
  174,017
  198,950
  224,375
  249,988
  275,528
  300,788
  325,617
  349,920
  373,656
  396,829
  419,486
  441,703
  463,586
  485,258
  506,855
  528,523
  550,410
  572,667
  595,443
  618,886
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1,442
  14,510
  21,059
  29,581
  40,261
  53,223
  68,495
  86,004
  105,585
  126,990
  149,914
  174,017
  198,950
  224,375
  249,988
  275,528
  300,788
  325,617
  349,920
  373,656
  396,829
  419,486
  441,703
  463,586
  485,258
  506,855
  528,523
  550,410
  572,667
  595,443
  618,886
Total cash flow (excl. dividends), $m
  -8,151
  8,217
  18,632
  25,796
  34,601
  45,123
  57,303
  70,985
  85,932
  101,837
  118,346
  135,087
  151,692
  167,816
  183,157
  197,466
  210,554
  222,290
  232,604
  241,476
  248,932
  255,036
  259,880
  263,577
  266,254
  268,046
  269,090
  269,523
  269,475
  269,072
  268,431
Retained Cash Flow (-), $m
  1,095
  -2,620
  -3,804
  -5,343
  -7,273
  -9,614
  -12,373
  -15,536
  -19,073
  -22,939
  -27,080
  -31,434
  -35,938
  -40,531
  -45,157
  -49,771
  -54,334
  -58,819
  -63,209
  -67,496
  -71,682
  -75,775
  -79,788
  -83,741
  -87,656
  -91,557
  -95,471
  -99,425
  -103,445
  -107,559
  -111,794
Prev. year cash balance distribution, $m
 
  159
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  5,756
  14,828
  20,453
  27,328
  35,509
  44,930
  55,450
  66,860
  78,898
  91,266
  103,653
  115,754
  127,285
  138,000
  147,695
  156,220
  163,472
  169,395
  173,980
  177,250
  179,262
  180,092
  179,836
  178,598
  176,489
  173,619
  170,098
  166,030
  161,513
  156,637
Discount rate, %
 
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.60
  17.43
  18.31
  19.22
  20.18
  21.19
  22.25
  23.36
  24.53
  25.76
  27.05
  28.40
  29.82
  31.31
  32.87
  34.52
  36.24
  38.06
  39.96
  41.96
  44.05
  46.26
  48.57
PV of cash for distribution, $m
 
  5,149
  11,739
  14,171
  16,375
  18,167
  19,364
  19,842
  19,564
  18,575
  16,992
  14,987
  12,749
  10,463
  8,286
  6,333
  4,670
  3,322
  2,278
  1,506
  959
  588
  347
  196
  107
  56
  28
  13
  6
  3
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Frontier Communications Corporation provides regulated and unregulated voice, data, and video services to residential, business, and wholesale customers in the United States. The company offers residential services, such as fiber-to-the-home and fiber-to-the-node broadband, as well as traditional copper-based broadband products; and commercial services, including Ethernet, dedicated Internet, multiprotocol label switching, time division multiplexing, data transport services, and optical transport services. It also provides Frontier Secure suite of products for computer security, cloud backup and sharing, identity protection, equipment insurance, and technical support; unified messaging services comprising call forwarding, conference calling, caller identification, voicemail, and call waiting services; long distance network services; and packages of communications services. In addition, the company offers switched access services that facilitate other carriers to use the company’s facilities to originate and terminate their local and long distance voice traffic; satellite TV video services; and a range of third-party communications equipment to small, medium, and enterprise business customers. As of December 31, 2015, it had approximately 3,124,200 residential customers; approximately 289,200 business customers; and 2,462,100 broadband subscribers. The company also operates a retail store in Southern California. The company was formerly known as Citizens Communications Company and changed its name to Frontier Communications Corporation in July 2008. Frontier Communications Corporation was founded in 1927 and is based in Norwalk, Connecticut.

FINANCIAL RATIOS  of  Frontier Communications (FTR)

Valuation Ratios
P/E Ratio -3.7
Price to Sales 0.2
Price to Book 0.3
Price to Tangible Book
Price to Cash Flow 0.8
Price to Free Cash Flow 5.2
Growth Rates
Sales Growth Rate 59.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 62.3%
Cap. Spend. - 3 Yr. Gr. Rate 17.1%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 391%
Total Debt to Equity 399.9%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.8%
Ret/ On Assets - 3 Yr. Avg. 2.1%
Return On Total Capital -1.7%
Ret/ On T. Cap. - 3 Yr. Avg. -0.6%
Return On Equity -7.4%
Return On Equity - 3 Yr. Avg. -2.7%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 62.3%
Gross Margin - 3 Yr. Avg. 64.8%
EBITDA Margin 32.3%
EBITDA Margin - 3 Yr. Avg. 34.5%
Operating Margin 10.1%
Oper. Margin - 3 Yr. Avg. 13.6%
Pre-Tax Margin -7%
Pre-Tax Margin - 3 Yr. Avg. -3.4%
Net Profit Margin -4.2%
Net Profit Margin - 3 Yr. Avg. -1.6%
Effective Tax Rate 40.1%
Eff/ Tax Rate - 3 Yr. Avg. 34.7%
Payout Ratio -189.5%

FTR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FTR stock intrinsic value calculation we used $8896 million for the last fiscal year's total revenue generated by Frontier Communications. The default revenue input number comes from 2016 income statement of Frontier Communications. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our FTR stock valuation model: a) initial revenue growth rate of 60% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 11.8%, whose default value for FTR is calculated based on our internal credit rating of Frontier Communications, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Frontier Communications.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of FTR stock the variable cost ratio is equal to 86.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for FTR stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 8.7% for Frontier Communications.

Corporate tax rate of 27% is the nominal tax rate for Frontier Communications. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the FTR stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for FTR are equal to 54.2%.

Life of production assets of 4.1 years is the average useful life of capital assets used in Frontier Communications operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for FTR is equal to -10.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $4519 million for Frontier Communications - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1044.52 million for Frontier Communications is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Frontier Communications at the current share price and the inputted number of shares is $1.2 billion.


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COMPANY NEWS

▶ Can Frontier Communications Weather a Market Downturn?   [Jun-25-17 01:40PM  Motley Fool]
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▶ Snap Returns To The Top Of Short-Seller Favorites   [Jun-06-17 04:05PM  Benzinga]
▶ Frontier Communications Stock Fell 30.3% in May 2017   [Jun-05-17 04:50PM  Market Realist]
▶ How Frontiers Dividend Yield Has Shaped Out   [09:06AM  Market Realist]
▶ Whats Happening with Charter in the Broadband Space?   [Jun-01-17 05:35PM  Market Realist]
▶ 3 Beaten-Up Cheap Stocks: Are They Bargains?   [May-31-17 09:17AM  Motley Fool]
▶ Exploring Frontiers Revenue Trends in 2017   [07:40AM  Market Realist]
▶ Whats the Outlook for Frontier for the Rest of 2017?   [May-30-17 03:58PM  Market Realist]
▶ These Stocks Have Lost 50% So Far in 2017   [08:32AM  Motley Fool]
▶ About to Buy High-Yield Dividend Stocks? Read This First   [May-28-17 06:44AM  Motley Fool]
▶ The Year's Worst-Performing S&P 500 Stocks   [May-26-17 05:32PM  GuruFocus.com]
▶ How AT&T Stock Has Performed   [07:36AM  Market Realist]
▶ Understanding Frontiers Recent Bounce   [May-22-17 04:38PM  Market Realist]
▶ CenturyLink and Level 3 Cut to Underperform   [May-15-17 01:23PM  Barrons.com]
▶ Which Stocks Are the Top Dividend Yielders?   [12:02PM  Market Realist]
▶ 3 Things Frontier Communications Wants Investors to Know   [May-09-17 07:18PM  Motley Fool]
▶ A Look at Verizons Wireline Earnings Margin   [07:36AM  Market Realist]
▶ A Look at Frontiers Forward Valuation   [10:35AM  Market Realist]
▶ Frontier Plummets as Dividend Slashed by 60%   [May-03-17 06:53PM  Barrons.com]
▶ Frontier Communications posts 1Q loss   [May-02-17 05:04PM  Associated Press]
▶ Analysts Latest Recommendations for Frontier   [10:37AM  Market Realist]
Stock chart of FTR Financial statements of FTR Annual reports of FTR
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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