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If Frontier Can Dodge Its Debt Risk, Its Equity Could Have 25x Upside By 2021

The GeoTeam profile picture
The GeoTeam


  • FTR is down about 97% in the last 5 years as the company's massive $17B debt load and out of date infrastructure have turned off potential equity investors.
  • We examine the company's debt maturity schedule and free cash flow estimates to arrive at the conclusion that it may not be the bankruptcy story the equity is pricing in.
  • If the company can dodge its bankruptcy risk, which we believe is possible, the equity could stand to have massive upside by 2021.
  • We explain our reasoning.
  • Looking for more? I update all of my investing ideas and strategies to members of Geo Microcap Insights. Start your free trial today »

Introduction: A 97% Ride Lower in Three Years

There may not be a more hated stock than Frontier Communications (FTR).

The idea was brought to us by friend and contributor Adam Spittler, and with his help, we took a deep dive into the company's debt maturity schedule and potential to generate cash over the next couple of years. We arrived at the conclusion that the equity should be viewed essentially as a call option at this point, but that there is a favorable enough risk/reward profile for us to consider a small speculative investment in the name.

If you know the story or have seen the stock chart, chances are you probably hate it. If you don't know the story, after about 2 minutes of reading, you are most likely too scared to dig deeper. Here's what the stock's performance has looked like over the last 3 years. The equity is down about 97%.

The History

To better understand what happened to Frontier, one must understand the history and underlying technology of the company. Note that I am not a radio frequency engineer, so this explanation is a bit "lay".

Frontier is a telco, or legacy telephone company, cobbled together from a bunch of disparate networks, no different than Verizon (VZ) or AT&T's (T) legacy telephone network. Telephone "data" is transmitted via low voltage electrical current through copper wire called twisted pair. Anyone who has cut through a telephone line can see the small strands of copper inside of it. As the signal travels through the twisted pair copper line, there is friction, which reduces the speed at which data can travel. The bigger (or thicker) the copper line, the more data that it can carry.

To oversimplify, think of the smallest wire being the old line you plugged into your

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This article was written by

The GeoTeam profile picture
GeoInvesting has worked diligently over the last decade to understand and benefit from working in areas that the Wall Street “crowd” has avoided – namely, microcap stocks. This niche of the market, while mostly ignored by analysts and financial media, is still often quietly invested in by many well-known billionaires. We apply our own deep-dive analysis in the space to find pockets of information arbitrage and unnoticed opportunities that have acted as the backbone for our investing success for over a decade. Unlike some investment banks and sell-side analysts, we don’t get paid by companies to write about them. --Armed with over a dozen analysts and a team of on the ground due diligence experts led by Maj Soueidan’s three decades of full-time investing experience, we look for high-impact idea generation. If you are looking to broaden your knowledge of investing, GeoInvesting can help with actionable insights on a wide array of stocks. -- Since GeoInvesting’s inception in 2007, we’ve been helping investors understand companies better by interviewing management teams, dissecting conference calls, interacting with our wide network of investors and scouring financial documents for hidden clues. GeoInvesting provides quick, concise and efficient research instead hundreds of pages of meaningless boilerplate jargon to pour through. You will no longer have to sift through these documents to find the most relevant aspects of a company’s operations, results and guidance – that’s our promise. --Sign up today and start to get: >Education on investing, both financial and psychological>Actionable Alerts>Exclusive Research>Trading Ideas>GeoTeam Positions>Access to the GeoTeam through our exclusive chatroom.--See GeoInvesting Micro Insights on Seeking Alpha Marketplace--About Maj Soueidan, co-Founder GeoInvestingMaj Soueidan is a full-time investor of 30 years. He co-founded GeoInvesting to bring institutional quality investment research to the individual investor and help broaden the awareness of the opportunities that exist in the inefficient micro-cap universe. In addition to educating investors on winning equity strategies, Mr. Soueidan has been on a mission to protect investors from fraud and pump and dump schemes. He introduced the “China fraud” to Geoinvesting and through his research process, identified dozens of U.S. listed China stocks he concluded were frauds, so that the Geoinvesting team could perform exhaustive on-the-ground due diligence research on them, including Puda Coal and Yuhe Intl. -- Maj works with and manages the GeoInvesting Team on a daily basis to increase its investment opportunity pipeline and heighten GeoInvesting’s awareness in the financial markets to intensify its market influence. He stresses the concept of “information arbitrage” in an era where information overload has actually made it more difficult for investors to locate profitable information. An information arbitrage exists when a disconnect between stock prices and available public information on a company is noticeable, and monetarily worth pursuing. ----------------------Other Publications:SanaCurrentsGeoInvesting has partnered with Bill Langbein of Sanacurrents to explore biotech opportunities through the publication of sentiment reports.--Before founding SanaCurrents, William (Bill) Langbein spent more than 20 years as a life science business journalist, with stops at California Medicine, In Vivo and Reuters Health. During that time, he wrote on genomic discoveries, the transition of the pharmaceutical companies to rely more on biologics, and the dawn of precision medicine, through which most drug developers came to recognize a one-drug-for-all approach would no longer work. --Because of the inherent volatility of biopharma and medical devices, small companies typically fly under the radar of investors. The emergence of precision medicine, however, reduces the volatility of small companies and increases the potential for strong returns. SanaCurrents was founded to identify the undervalued therapies that would benefit patients and investors the most. Find out more about SanaCurrents here - https://seekingalpha.com/instablog/360252-the-geoteam/5261407-sanacurrents-new-service-dissects-biotech-catalysts-assigns-sentiments-outcomes-case-studies

Analyst’s Disclosure: I am/we are long FTR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (216)

Growtheport profile picture

Hmm, aren't you the same guy who predicted .01 15 months ago?

Nothing personal, but that one isn't even close.

I think you have advise and contibutors confused. Last I checked, SA articles from most authors are informational and feature stocks/companies for possible investment.
Flipper2058 profile picture

"aren't you the same guy who predicted .01 15 months ago?"

no, the stock is noise, it really doesn't matter in FTR's equation now. I assume you know this.
Growtheport profile picture
I know this. You have memory issues:

The GeoTeam profile picture
Yesterday afternoon’s earnings seem to point that the company is moving in the right direction. The stock so far today traded as high as $3.50, representing a near 75% increase since our report, written in collaboration with Adam Spittler (email: a_spittler@hotmail.com) Here are some of the highlights from yesterday’s earnings report and conference call:

-Rev 2.12m flat YOY for first time in years.
-CC noted Q1 revenue is extremely strong.
-Consumer churn improved to the lowest rates in FTR history
-Consumer ARPU increased YOY from 81.61 to 86.05 as legacy CTF teaser contracts roll off
-EBITDA of $895m is the first increase QoQ since the CTF purchase
-FCF of $620m is the highest annual figure in recent FTR history
-Management hit their guidance for the first time in the past few years
-Management did a fantastic job of explaining the situation on their conference call for the first time in a long time and should be commended for the transformation
-2019 guidance is materially conservative allow management to under promise and over deliver for the first time in recent history
-2019 and 2020 debt maturities now appear to be easier to solve with operational FCF
-2021 secured debt will be more likely to roll
-2022 wall of debt now looks to be manageable to relatively easy to handle given FCF guidance of $575m – $675m 2019 FCF

In summary, the FTR death spiral has definitely quieted.

Again, the FTR idea was brought to us by friend and contributor Adam Spittler (email: a_spittler@hotmail.com), and with his help we took a deep dive into the company's debt maturity schedule and potential to generate cash over the next couple of years. We arrived at the conclusion that any long position in the equity should be viewed essentially as a call option at this point.
Growtheport profile picture
I've been long FTR a bit too long and doubled down in the $2 range. And while the recent report seems to indicate (finally) a turnaround, if I had it to do all over again, I'd take a pass on this one. The opporutnity costs of being in this one have been very high.

I would also sell into this rally (if I was Up or even) as history suggests it will fade, shorts will enter again, and FUD will reign until we see multiple positive QT reports.
What? 4Q rev was -4% YoY from 2017. And EBITDA was -2.6%. Annual FCF of around $600MM won't make the impeding debt problem go away, especially since net interest cost really didn't reduce much at all. Just kicking the can. Big losses in video and landline customers still. Come on man, how thin do you want to slice the baloney? Enjoy the bounce. It's still a dead cat.
Equanimity Investing profile picture
On the negative side, however, capex being subdued under a time sensitive 5G roll out is not reassuring. Outside of the near term maturities, some of the debt is still trading at 50 cents on the dollar.
FTR is a cash cow for the patient bond investor. What amazes me is that with historically low interest rates, in Europe with their negative interest rates, there isn't collaborative support for a long term credit partnership/ investment package. The mere thought suggests this whole fiasco is rigged (the push off the cliff is ever near) by the Wall Street predators.
No, bond investors are just worried they won't get their principal back.

Interest is nice - and yes, Frontier can meet interest payments on its debt - but its not certain it would ever be able to repay all of the principal as well.
It would be interesting to compare FTR's revenue stability and operating margins with other companies. While I don't have the time, my experience over the years tells me FTR's comparisons would look pretty good. There are in fact very few companies which could pay off their debt if that were the criteria. Most companies simply refund it. Just a hypothesis: would creditors/predators simply prefer to pick the carcass of the cash cow?
Most companies don't have a steady downward trajectory in their customer base.

Let's be clear, if Frontier weren't experiencing quarter after quarter of meaningful loss in their subscriber base, they would have no issues whatsoever refinancing all their debt - and at much lower interest rates.

But I am speaking to a wall of denial.
This is not even trading 1 × earnings, $3.5 billion.
Nab.Investments profile picture
FTR insider buying pre Q4 results.
Little, Einstein profile picture
This garbage pot, is so much junk that goes up to 10%
Only to attract, believers in miracles
All eyes on FTR, after reviewing many comments here, a lot of good ones I might add, the future of FTR in the short term is a 9 dollar stock price with a possible push to 16 bucks after 9 is breached. Do not under estimate the power of greed, this stock has been perfectly set-up for one of the biggest 2 to 3 day breakouts we will see this year. Some wealthy people are going to get wealthier, I simply tag along for the ride...
FTR common turning out to be a good short-term trade - for those who got in below $2 anyway.

Long term, I'd avoid it.

Thing is, I bet there are a lot who thought it would be a good short-term trade at $8..then $6...then $4.....tough to call the bottom on a stock headed for eventual wipe-out.
jamesb381 profile picture
Just checked back onto this board after several months to see if anything had changed. Frontier STILL in the toilet. Shareholders STILL praying for miracles. Dan McCarthy STILL taking the ship down. Alkaline Capital STILL making snarky now-it-all comments. Good people STILL hurting from this debacle. See you all in another few months.
Nab.Investments profile picture
Shorts are getting so desperate that they are trading amongst themselves in after hours to make it look like FTR is dropping in price!!! :

(info. from Nasdaq.com)

After Hours Time (ET).....After Hours Price......After Hours Share Volume
18:29:59..........................$ 2.27...................................40
17:53:36..........................$ 2.33...................................1
17:52:23..........................$ 2.2701...............................250
17:41:30..........................$ 2.33...................................1

Considering we are trading easily >25% above average volumes (today 4.6m shares traded), and the pure desperation of the shorts, shows the beginning of the end is near! The Big Short Squeeze is in slow progress, with FTR's price set to explode to the upside post Q4.
Flipper2058 profile picture
"Shorts are getting so desperate that they are trading amongst themselves in after hours"

PLEASE don't turn this into a mindless Yahoo message board...if you want to prep rally a stock please go there.
Nab.Investments profile picture
I don't need to!!! But I see from your other comments maybe you do.
Little, Einstein profile picture
18B of debt !!!
What is this? It has more debts than some countries !!!!!!!!!!!!!!
Then ATT and VZ’s debt should have you terrified.
James Burgess - Tradestar profile picture
Desperate attempts to suppress Frontier Communication Stock Price

Shortsqueeze.com :
Impossible these are borrowed shares (49,456,500 just reported)


Shortsqueeze.com :- Short Interest Ratio (Days To Cover) 13 days

% Owned by Insiders 1.80%
% Owned by Institutions 72.71
James Burgess - Tradestar profile picture
More Desperate attempts to suppress Frontier Communication Stock Price

“Once again “ - following positive upward price movement ($1.98 to $2.25 per share.

These obvious and suspicious attempts to drive down FTR Stock are plain for all to see :-

Negative/ Bearish News for this day:
1. “How Does Frontier Communications' Valuation Look?”

2. “Better buy: Frontier Communications vs. Verizon”
(Motley Fool)

Remember these downward drops are happening as result of negative news and big institutional plays rather than fundamentals.

The Reality for FTR Stock

Wall Street analysts’ consensus estimate, Frontier stock has a median target price of $4.50. The stock’s current market price is $2.10, which indicates a potential upside of 114.3% over the next 12 months.

Best Buying Opportunities:
A) Frontier bonds have fundamental value - FTR bonds are trading around 50% of par. Therefore offering great risk to reward ratios.

B) Currently priced around $2.25 the stock represents a very cheap, long dated option (2 years)

In 2019 Frontier stock is projected to produce $7 a share of levered free cash flow. Currently Frontier trades at less than 1x LFCF, upside is huge.
Just realize regardless of FTR , etc., and its merits, the performance of the shares, not the company, is heavily influenced by the "Trade". Investing the old fashion way is a thing of the past.
Артём M profile picture
Thank you very much for the article.
Very interesting
Nab.Investments profile picture
FTR: 2019's biggest short squeeze coming soon!!! For all the amature traders and commentary tyre kickers watch and learn!
Flipper2058 profile picture
Clearly the answer to get FTR stock price up is file bankruptcy, note SHLDQ since filing. ;-))
Nab.Investments profile picture
I think maybe you should watch 'The Big Squeeze' it's a new horror movie about FTR. Wait and see... I have over ten years of trading experience not a commentary tyre kicker. See all my previous comments and my current stock holdings.
1/31 settlement (1/29 last trade date) Short Interest Numbers are out

FTR Short Interest up 7.8 million shares (7.3% of the float)

Basically AT LEAST 20.3% of the shares sold between 1/14 and 1/29 were short sales ASSUMING no shorts covered during that period.

If you assume that 40% of the buys in that period were short covers (the shorts were 40% of the float at 1/15) then that would imply 60% of the sales were short sales.

Whatever the number was it was significant.

Shorts now >47% of the shares outstanding.

Clearly the shorts had a strong hand in pushing this down. Now I expect they will have a strong hand in pushing it up.
4.80 is a reasonable target, my target is 6 to 6.50 after earnings, the numbers on the guidance for 2019 outlook should do it for FTR.
James Burgess - Tradestar profile picture
FTR fundamentals are the real issue - if they reduce costs/debt and even sell off a few more assets the upside potential is big.

Can they compete or provide the service against AT&T / Verizon etc - no

Analysts have provided $4.81 average stock price consensus as they believe Frontier will surprise / deliver some good news on turn around plans.

Would I recommend being a Frontier customer - no - I only suggested this as rewarding Investment considering the current bargain risk / reward pricing.
Future is in hi-Speed internet service or bundled services (for those who don’t want to cut the chord). FTR is offering 12 mbps + unlimited nationwide calling + Americas top 120 channels for 102$/month with a 2-year price guarantee. It might appear attractive till you go to Charter Communications site and find a competing package for 99$/month BUT with 100 MBPS connection. Who wants to pay more for a slower connection and poor customer service?
Just a point of reference: I live in Bangkok and use True for 100Mbps internet+cell service with unltd calling, free WiFi spots, and 1Gb data+basic cable (since I prefer DirecTV Now,) and it's THB850/month, so under US$30. Works great, usually better than broadband in the US. Looking at an UPG to 1Gbps for about US$40/mon total. Does anybody actually use a landline anymore, except as a throwin to get a better bundle price. But $100/mon? Absurd as is most of this discussion-thanks, I agree with Vik, above. Enjoy.
Night Shadow profile picture
You cant compare the prices paid in Bangkok to the ones paid in the US.

Was doing research on another company, and had the following "best offer price" in that country: ~ 60 USD/month for 200/20 MB. When bundling that with TV (basic, 80 channels) and fixed (only free calling during night), you are looking at a total price of ~95 USD.
Yeah, Thailand is irrelevant. I've lived in a lot of countries - the US, at this point, has about the slowest internet speeds, for the highest prices.
Nab.Investments profile picture
They have plenty of time. The same nonsense was said about Valeant Pharmaceuticals a couple of years ago and I made a huge amount of money!!! If we were towards end of 2021 and the situation was drastically worst with a correlated quarter over quarter decline, then I would wholeheartedly agree with your comment.
There is no imminent bankruptcy in 2019 or 2020 but stock markets are forward looking and typically have more information than the retail investor. If the management has to choose between CapEx spending and Interest payments and every quarter becomes a struggle for survival, that is not an ideal condition for focusing on business. Capital structure issues are an impediment and distraction from core business which itself is changing very rapidly. Just look at your Verizon bill - the price you paid for wireless is coming down year after year as competition heats up. We only have 4 big players - VZ, T, T-mobile & Sprint.
Communication services are capital-intensive coupled with pricing pressures and technology obsolescence risks (requiring more CapEx). If wireline assets are that lucrative why would VZ or T sell it to FTR to start with?
James Burgess - Tradestar profile picture
FTR fundamentals are the real issue - if they reduce costs/debt and even sell off a few more assets the upside potential is big.

Can they compete or provide the service against AT&T / Verizon etc - no

Analysts have provided $4.81 average stock price consensus as they believe Frontier will surprise / deliver some good news on turn around plans.

Would I recommend being a Frontier customer - no - I only suggested this as rewarding Investment considering the current bargain risk / reward pricing.
If FTR files for chap-11, Charter could pick up the assets at deep discount and expand into markets they don’t have a presence in. Bond holders obviously have a stronger interest in keeping FTR viable. Not sure if the covenants on rollover could insist on appointing a CFO of repute...Is the management team being compensated enough to steer this to clear seas? If there is no incentive, the lazy option would be to file for BK. Operating costs & Employee turnover could be addressed by outsourcing to vendors. Most people in IT support are already transitioning to Accenture...It is no longer safe to be on the cost side of the equation. As an employee, be instrumental in generating revenue for the company and your job is safe. If you are in customer service, be with a vendor that offers customer service - not with companies like FTR...
Nab.Investments profile picture
Why would they ever file for chapter 11 when they can easily meet all interest payments and debts for the next few years!!! Just a stupid comment.
Because of the year after the next few years?
Nab.Investments profile picture
...They have plenty of time. The same nonsense was said about Valeant Pharmaceuticals a couple of years ago and I made a huge amount of money!!! If we were towards end of 2021 and the situation was drastically worst with a correlated quarter over quarter decline, then I would wholeheartedly agree with your comment.
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