Frontier Communications - Part 1: Can Earnings And Cash Flow Be Predicted By Revenue?

6/29/17

By The Owl

I. Introduction:

In an earlier article (Frontier Communications is Not Going to Zero - Here's Why), a model was offered to dispute the widely held view that Frontier Communications (NYSE:FTR) was going to zero due to an overwhelming debt burden, an inability to service the interest on the debt, and an inability to repay debt sufficiently to remain a viable enterprise. This earlier article modeled future annual earnings and cash flow based upon the past relationship between revenue and those resulting financial parameters going forward, focusing on the long-term view with an annual review of results. In contrast, much of the discussion focused on short-term impacts for which the original long-term model was not designed to address. That is, much of the discussion was focused on events between now and 2020, whereas the focus of the article was to demonstrate that Frontier was viable longer term out to the 10-year horizon.

In order to address shorter term concerns, a different model developed to focus on quarterly earnings rather than annual earnings is required. Two issues were desirable in creating a shorter term model:

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