Intrinsic value of Frontier Communications - FTR

Previous Close

$1.36

  Intrinsic Value

premium content

  Rating & Target

premium content

  Value-price divergence*

premium content

Previous close

$1.36

 
Intrinsic value

$135.99

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence* premium content

Premium access subscription - $499/yr

please register and log in before paying

*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 1.6

 

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
 
  11,746
  17,620
  25,872
  37,102
  51,948
  71,054
  95,044
  124,496
  159,919
  201,737
  249,310
  304,805
  367,393
  437,125
  513,981
  597,883
  688,711
  786,318
  890,547
  1,001,239
  1,118,251
  1,241,460
  1,370,773
  1,506,132
  1,647,515
  1,794,942
  1,948,474
  2,108,214
  2,274,308
  2,446,941
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
  11,746
  17,620
  25,872
  37,102
  51,948
  71,054
  95,044
  124,496
  159,919
  201,737
  249,310
  304,805
  367,393
  437,125
  513,981
  597,883
  688,711
  786,318
  890,547
  1,001,239
  1,118,251
  1,241,460
  1,370,773
  1,506,132
  1,647,515
  1,794,942
  1,948,474
  2,108,214
  2,274,308
  2,446,941
Operating income, $m
  902
  2,488
  4,371
  7,016
  10,616
  15,375
  21,500
  29,190
  38,631
  49,986
  63,391
  79,919
  97,708
  117,771
  140,125
  164,762
  191,657
  220,773
  252,062
  285,474
  320,957
  358,466
  397,962
  439,415
  482,806
  528,127
  575,387
  624,603
  675,809
  729,052
  784,391
EBITDA, $m
  2,933
  5,470
  8,452
  12,639
  18,339
  25,874
  35,570
  47,746
  62,693
  80,671
  101,894
  126,529
  154,694
  186,458
  221,848
  260,854
  303,436
  349,533
  399,070
  451,968
  508,146
  567,531
  630,062
  695,691
  764,388
  836,142
  910,964
  988,884
  1,069,955
  1,154,250
  1,241,864
Interest expense (income), $m
  1,467
  1,519
  2,767
  4,576
  7,117
  10,575
  15,147
  21,030
  28,418
  37,488
  48,396
  61,273
  76,221
  93,311
  112,584
  134,058
  157,725
  183,562
  211,532
  241,590
  273,686
  307,773
  343,807
  381,748
  421,570
  463,253
  506,791
  552,190
  599,469
  648,660
  699,808
Earnings before tax, $m
  -623
  968
  1,604
  2,440
  3,499
  4,800
  6,353
  8,160
  10,213
  12,499
  14,995
  18,645
  21,487
  24,461
  27,541
  30,704
  33,932
  37,211
  40,530
  43,884
  47,271
  50,693
  54,156
  57,667
  61,236
  64,875
  68,596
  72,413
  76,340
  80,392
  84,583
Tax expense, $m
  -250
  261
  433
  659
  945
  1,296
  1,715
  2,203
  2,758
  3,375
  4,049
  5,034
  5,802
  6,604
  7,436
  8,290
  9,162
  10,047
  10,943
  11,849
  12,763
  13,687
  14,622
  15,570
  16,534
  17,516
  18,521
  19,551
  20,612
  21,706
  22,838
Net income, $m
  -373
  707
  1,171
  1,781
  2,554
  3,504
  4,638
  5,956
  7,456
  9,124
  10,947
  13,611
  15,686
  17,856
  20,105
  22,414
  24,771
  27,164
  29,587
  32,035
  34,508
  37,006
  39,534
  42,097
  44,702
  47,359
  50,075
  52,861
  55,728
  58,686
  61,746

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
  21,763
  33,624
  50,285
  72,961
  102,937
  141,515
  189,954
  249,422
  320,945
  405,380
  503,390
  615,443
  741,816
  882,614
  1,037,797
  1,207,207
  1,390,602
  1,587,684
  1,798,135
  2,021,637
  2,257,900
  2,506,677
  2,767,778
  3,041,086
  3,326,557
  3,624,232
  3,934,234
  4,256,772
  4,592,138
  4,940,708
Working capital, $m
  -788
  -1,452
  -2,243
  -3,355
  -4,867
  -6,867
  -9,440
  -12,672
  -16,639
  -21,410
  -27,043
  -33,581
  -41,056
  -49,487
  -58,879
  -69,232
  -80,533
  -92,767
  -105,915
  -119,954
  -134,864
  -150,625
  -167,221
  -184,639
  -202,872
  -221,916
  -241,773
  -262,454
  -283,970
  -306,343
  -329,596
Total debt, $m
  18,070
  32,171
  53,205
  82,751
  122,965
  176,125
  244,539
  330,442
  435,903
  562,743
  712,480
  886,291
  1,085,006
  1,309,116
  1,558,809
  1,834,012
  2,134,446
  2,459,678
  2,809,185
  3,182,400
  3,578,761
  3,997,751
  4,438,933
  4,901,972
  5,386,657
  5,892,914
  6,420,813
  6,970,572
  7,542,563
  8,137,303
  8,755,459
Total liabilities, $m
  24,494
  38,595
  59,629
  89,175
  129,389
  182,549
  250,963
  336,866
  442,327
  569,167
  718,904
  892,715
  1,091,430
  1,315,540
  1,565,233
  1,840,436
  2,140,870
  2,466,102
  2,815,609
  3,188,824
  3,585,185
  4,004,175
  4,445,357
  4,908,396
  5,393,081
  5,899,338
  6,427,237
  6,976,996
  7,548,987
  8,143,727
  8,761,883
Total equity, $m
  4,519
  7,026
  10,854
  16,233
  23,553
  33,230
  45,684
  61,321
  80,518
  103,607
  130,864
  162,504
  198,676
  239,472
  284,924
  335,020
  389,709
  448,912
  512,534
  580,472
  652,622
  728,892
  809,202
  893,491
  981,719
  1,073,875
  1,169,970
  1,270,044
  1,374,166
  1,482,428
  1,594,953
Total liabilities and equity, $m
  29,013
  45,621
  70,483
  105,408
  152,942
  215,779
  296,647
  398,187
  522,845
  672,774
  849,768
  1,055,219
  1,290,106
  1,555,012
  1,850,157
  2,175,456
  2,530,579
  2,915,014
  3,328,143
  3,769,296
  4,237,807
  4,733,067
  5,254,559
  5,801,887
  6,374,800
  6,973,213
  7,597,207
  8,247,040
  8,923,153
  9,626,155
  10,356,836
Debt-to-equity ratio
  3.999
  4.580
  4.900
  5.100
  5.220
  5.300
  5.350
  5.390
  5.410
  5.430
  5.440
  5.450
  5.460
  5.470
  5.470
  5.470
  5.480
  5.480
  5.480
  5.480
  5.480
  5.480
  5.490
  5.490
  5.490
  5.490
  5.490
  5.490
  5.490
  5.490
  5.490
Adjusted equity ratio
  0.140
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -373
  707
  1,171
  1,781
  2,554
  3,504
  4,638
  5,956
  7,456
  9,124
  10,947
  13,611
  15,686
  17,856
  20,105
  22,414
  24,771
  27,164
  29,587
  32,035
  34,508
  37,006
  39,534
  42,097
  44,702
  47,359
  50,075
  52,861
  55,728
  58,686
  61,746
Depreciation, amort., depletion, $m
  2,031
  2,983
  4,081
  5,623
  7,723
  10,499
  14,071
  18,556
  24,062
  30,685
  38,503
  46,610
  56,985
  68,687
  81,724
  96,092
  111,778
  128,759
  147,008
  166,494
  187,189
  209,065
  232,100
  256,276
  281,582
  308,015
  335,577
  364,281
  394,146
  425,198
  457,473
Funds from operations, $m
  1,710
  3,689
  5,252
  7,405
  10,278
  14,003
  18,708
  24,512
  31,518
  39,809
  49,449
  60,221
  72,671
  86,543
  101,828
  118,506
  136,549
  155,923
  176,595
  198,529
  221,696
  246,071
  271,633
  298,373
  326,284
  355,373
  385,652
  417,142
  449,874
  483,884
  519,219
Change in working capital, $m
  44
  -544
  -791
  -1,111
  -1,513
  -2,000
  -2,574
  -3,231
  -3,967
  -4,771
  -5,633
  -6,538
  -7,475
  -8,430
  -9,393
  -10,352
  -11,301
  -12,234
  -13,147
  -14,039
  -14,910
  -15,761
  -16,596
  -17,418
  -18,232
  -19,044
  -19,858
  -20,680
  -21,517
  -22,372
  -23,253
Cash from operations, $m
  1,666
  8,198
  6,043
  8,516
  11,790
  16,002
  21,282
  27,744
  35,485
  44,580
  55,082
  66,760
  80,146
  94,973
  111,221
  128,859
  147,850
  168,158
  189,742
  212,568
  236,606
  261,832
  288,229
  315,791
  344,517
  374,417
  405,510
  437,823
  471,390
  506,256
  542,472
Maintenance CAPEX, $m
  0
  -1,259
  -2,015
  -3,113
  -4,656
  -6,756
  -9,531
  -13,103
  -17,588
  -23,095
  -29,717
  -37,535
  -46,610
  -56,985
  -68,687
  -81,724
  -96,092
  -111,778
  -128,759
  -147,008
  -166,494
  -187,189
  -209,065
  -232,100
  -256,276
  -281,582
  -308,015
  -335,577
  -364,281
  -394,146
  -425,198
New CAPEX, $m
  -1,401
  -8,163
  -11,861
  -16,661
  -22,676
  -29,976
  -38,578
  -48,439
  -59,468
  -71,523
  -84,435
  -98,010
  -112,053
  -126,373
  -140,799
  -155,183
  -169,410
  -183,394
  -197,082
  -210,451
  -223,502
  -236,263
  -248,776
  -261,101
  -273,307
  -285,471
  -297,675
  -310,002
  -322,538
  -335,366
  -348,569
Cash from investing activities, $m
  -11,259
  -9,422
  -13,876
  -19,774
  -27,332
  -36,732
  -48,109
  -61,542
  -77,056
  -94,618
  -114,152
  -135,545
  -158,663
  -183,358
  -209,486
  -236,907
  -265,502
  -295,172
  -325,841
  -357,459
  -389,996
  -423,452
  -457,841
  -493,201
  -529,583
  -567,053
  -605,690
  -645,579
  -686,819
  -729,512
  -773,767
Free cash flow, $m
  -9,593
  -1,225
  -7,833
  -11,258
  -15,542
  -20,730
  -26,827
  -33,799
  -41,571
  -50,038
  -59,070
  -68,786
  -78,517
  -88,385
  -98,264
  -108,048
  -117,652
  -127,015
  -136,100
  -144,890
  -153,390
  -161,620
  -169,612
  -177,410
  -185,066
  -192,636
  -200,179
  -207,756
  -215,428
  -223,255
  -231,296
Issuance/(repayment) of debt, $m
  1,487
  14,503
  21,034
  29,546
  40,214
  53,160
  68,414
  85,903
  105,460
  126,840
  149,737
  173,812
  198,715
  224,110
  249,693
  275,203
  300,433
  325,233
  349,507
  373,215
  396,361
  418,990
  441,182
  463,039
  484,685
  506,257
  527,899
  549,760
  571,991
  594,740
  618,155
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
  14,503
  21,034
  29,546
  40,214
  53,160
  68,414
  85,903
  105,460
  126,840
  149,737
  173,812
  198,715
  224,110
  249,693
  275,203
  300,433
  325,233
  349,507
  373,215
  396,361
  418,990
  441,182
  463,039
  484,685
  506,257
  527,899
  549,760
  571,991
  594,740
  618,155
Total cash flow (excl. dividends), $m
  -8,151
  13,278
  13,201
  18,288
  24,672
  32,431
  41,587
  52,104
  63,889
  76,802
  90,667
  105,026
  120,198
  135,725
  151,429
  167,155
  182,781
  198,218
  213,407
  228,324
  242,970
  257,371
  271,570
  285,629
  299,619
  313,621
  327,719
  342,003
  356,562
  371,485
  386,860
Retained Cash Flow (-), $m
  1,095
  -2,627
  -3,829
  -5,378
  -7,320
  -9,677
  -12,454
  -15,637
  -19,197
  -23,089
  -27,257
  -31,639
  -36,173
  -40,795
  -45,452
  -50,096
  -54,689
  -59,203
  -63,622
  -67,937
  -72,151
  -76,270
  -80,310
  -84,288
  -88,229
  -92,156
  -96,095
  -100,074
  -104,121
  -108,262
  -112,525
Prev. year cash balance distribution, $m
 
  120
  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
 
  10,772
  9,372
  12,910
  17,352
  22,754
  29,133
  36,467
  44,692
  53,713
  63,410
  73,387
  84,025
  94,930
  105,976
  117,059
  128,092
  139,014
  149,786
  160,387
  170,820
  181,100
  191,260
  201,340
  211,390
  221,465
  231,624
  241,929
  252,441
  263,223
  274,335
Discount rate, %
 
  11.90
  12.50
  13.12
  13.78
  14.46
  15.19
  15.95
  16.74
  17.58
  18.46
  19.38
  20.35
  21.37
  22.44
  23.56
  24.74
  25.98
  27.28
  28.64
  30.07
  31.57
  33.15
  34.81
  36.55
  38.38
  40.30
  42.31
  44.43
  46.65
  48.98
PV of cash for distribution, $m
 
  9,626
  7,406
  8,919
  10,355
  11,580
  12,472
  12,944
  12,952
  12,503
  11,652
  10,452
  9,098
  7,655
  6,228
  4,900
  3,728
  2,743
  1,950
  1,340
  889
  569
  351
  209
  120
  66
  35
  18
  9
  4
  2
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 -4.3
Price to Sales 0.2
Price to Book 0.4
Price to Tangible Book
Price to Cash Flow 1
Price to Free Cash Flow 6
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 11.9%, 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 8.6% 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 152.9%.

Life of production assets of 10.8 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 -10.2%. 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 1182.24 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 $1.6 billion.


Premium access subscription - $499/yr

please register and log in before paying
RELATED COMPANIES Price Int.Val. Rating
CMCSA Comcast Cl A 40.34 prem.  prem.
CTL CenturyLink 24.93 prem.  prem.
SHEN Shenandoah Tel 30.50 prem.  prem.
T AT&T 38.23 prem.  prem.
LMOS Lumos Networks 17.87 prem.  prem.
GNCMA General Commun 36.84 prem.  prem.

COMPANY NEWS

▶ 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]
▶ Analyzing Frontiers Scale and Valuation   [09:07AM  Market Realist]
▶ A Look at Frontiers Capex Plans in 2017   [07:38AM  Market Realist]
▶ Could Frontier Achieve Earnings Growth in 1Q17?   [May-01-17 10:39AM  Market Realist]
▶ Frontiers Revenue Growth Expected to Decline   [09:09AM  Market Realist]
▶ 10 Highest-Yielding Dividend Stocks   [07:43AM  Motley Fool]
▶ 7 must-watch earnings reports this week   [07:13AM  MarketWatch]
▶ 7 must-watch earnings reports over the next week   [Apr-29-17 07:55AM  MarketWatch]
▶ Trumps FCC bulldozes open internet rules without a plan B   [Apr-26-17 07:57PM  Yahoo Finance]
▶ 3 High-Yield Dividend Stocks to Avoid This Spring   [Apr-24-17 07:39AM  Motley Fool]
▶ 3 Reasons to Sell Frontier Communications Now   [Apr-09-17 07:11AM  Motley Fool]
▶ 3 High-Risk Dividend Stocks You Should Probably Avoid   [Apr-07-17 04:20PM  Motley Fool]
▶ Here's how the Cross Bay Ferry is performing, close to the end of pilot period   [Apr-05-17 05:20PM  American City Business Journals]
▶ Frontier Falling: The Downhill March   [01:35PM  Market Realist]
▶ CenturyLinks Dividend Yield Compared to Its Peers   [09:07AM  at Market Realist]
▶ The 5 Worst Performing S&P 500 Stocks in Q1   [Apr-01-17 09:40AM  24/7 Wall St.]
▶ The 2 Most Dangerous Types of Dividend Stocks   [09:29AM  at Motley Fool]
▶ Inside Frontiers Free Cash Flow and Capex Plans   [09:06AM  at 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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.