I opened a position today at $4.26 per share. Share prices have fallen drastically due to continued customer losses, declining revenue in its higher margin businesses, a large debt load over 3x EBITDA and concerns about the recent Verizon transaction that more than doubled the company’s size. Its current yield of 17.5% suggests the market is convinced that a dividend cut is coming. Even so, shares appear attractive. As with most telecoms, FTR generates copious free cash flow that should be able to cover debt payments and a substantial dividend payout. Even if FTR cuts its dividend by 50% or even 75%, it would still yield an attractive 9% or 4.5%, nothing to sneeze at when the 30-year US Treasury barely yields 3%. Even with a negative 5% growth rate for the next 5 years, I still see value in these shares and estimate FTR to be worth $6 – $8.
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