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Frontier Communications Corp Valuation – November 2015 Update $FTR

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Frontier Communications Corp (FTR) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Frontier Communications Corporation is a communications company. The Company is engaged in providing services to rural areas and small and medium-sized towns and cities in the United States. It offers a range of voice, data and video services and products. The Company offers a portfolio of communications services for residential and business customers in each of its markets. It conducts business with both residential and business customers, and it provides the last mile of communications services to customers in these markets. The Company provides data and Internet services and wireless data services, basic local and long distance voice wireline services to residential and business customers in its service areas, network access to interexchange carriers for origination and termination of long distance voice and data traffic, sales of its own and third party video services, and sales of customer premise equipment.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of FTR – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $5,408,872,304 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 7.14 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -99.12% Fail
6. Moderate PEmg Ratio PEmg < 20 435.94 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.92 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 7.14 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.83 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

FTR value Chart November 2015

EPSmg $0.01
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Value based on 3% Growth $0.15
MG Value based on 0% Growth $0.09
Market Implied Growth Rate 213.72%
Current Price $4.65
% of Intrinsic Value N/A

Frontier Communications Corp does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned by the insufficient earnings growth or stability over the last ten years, and high PEmg ratio.  The Enterprising Investor has concerns with the level of debt in relation to the net current assets, and the lack of earnings growth or stability over the last five years. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $0.31 in 2011 to an estimated $0.01 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Frontier Communications Corp (FTR)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

FTR Charts November 2015

Net Current Asset Value (NCAV) -$9.74
Graham Number #NUM!
PEmg 435.94
Current Ratio 7.14
PB Ratio 0.92
Dividend Yield 8.92%
Number of Consecutive Years of Dividend Growth 1

 

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Most Recent Balance Sheet Figures

Total Current Assets $10,195,000,000
Total Current Liabilities $1,428,000,000
Long-Term Debt $16,016,000,000
Total Assets $27,365,000,000
Intangible Assets $8,386,000,000
Total Liabilities $21,510,000,000
Shares Outstanding (Diluted Average) 1,161,207,000

Earnings Per Share History

Next Fiscal Year Estimate -$0.22
Dec14 $0.13
Dec13 $0.11
Dec12 $0.13
Dec11 $0.15
Dec10 $0.23
Dec09 $0.38
Dec08 $0.57
Dec07 $0.65
Dec06 $1.06
Dec05 $0.60
Dec04 $0.23
Dec03 $0.64
Dec02 -$2.43
Dec01 -$0.38
Dec00 -$0.11
Dec99 $0.55
Dec98 $0.22
Dec97 $0.04
Dec96 $0.71
Dec95 $0.72

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.01
Dec14 $0.13
Dec13 $0.16
Dec12 $0.22
Dec11 $0.31
Dec10 $0.45
Dec09 $0.59
Dec08 $0.67
Dec07 $0.69
Dec06 $0.48
Dec05 $0.04
Dec04 -$0.30
Dec03 -$0.49
Dec02 -$0.85
Dec01 -$0.01
Dec00 $0.21
Dec99 $0.39

Recommended Reading:

Other ModernGraham posts about the company

Frontier Communications Corp Annual Valuation – 2014 $FTR

Other ModernGraham posts about related companies

Harris Corporation Analysis – September 2015 Update $HRS
Arris Group Inc. Analysis – Initial Coverage $ARRS
Level 3 Communications Inc. Analysis – Initial Coverage $LVLT
Windstream Holdings Analysis – 2015 Update $WIN
Harris Corporation Analysis – June 2015 Update $HRS
Harris Corporation Quarterly Valuation – March 2015 $HRS
Verizon Communications Annual Valuation – 2015 $VZ
AT&T Inc. Annual Valuation – 2015 $T
CenturyLink Inc. Annual Valuation – 2014 $CTL
Harris Corporation Quarterly Valuation – December 2014 $HRS

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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