Investment Thesis
Frontier Communications (FTR) is on the radar of many investors. Since it is a free cash flow generating business, many investors, myself included, would argue passionately that the business does generate cash and as a result it can service some portion of its debt, refinance the rest and offer contrarian and patient investors phenomenal rates of return. However, as a deep value investor, having learned a thing or two in this profession, I can tell you this: highly leveraged companies, where management is not truly aligned with shareholders, are best to be avoided. The risks are too high and the outcome too speculative - no matter how tempting.
Corporate Spin
When it comes to spinning a great story of a turnaround, Frontier Communications is unmatched. The rhetoric is so alluring; the talk of deleveraging, managing the downturn and stabilization and 'improvement in subscriber trends' make a potential investment appear so easy. The problem is that numbers paint a different story; subscriber churn numbers shows that customers are still leaving, albeit at diminishing rates.
Management's earnings call tries to convince investors that they only need to wait until Q2 2018 for management's efforts to have a chance to get the necessary traction and deliver results. For instance, management talks of being 'on track to attain the remaining $274 million in cost synergies by mid-2018'. These synergies are practically nonexistent. Not when its CFT acquisition cost roughly $10.5 billion.
