In my previous assessment of FairPoint Communications (NYSE:FRP), I warned that the company might cut its substantial dividend. Late last week, that very event came to pass. What I did not, predict, however, was the degree to which the market would throw a hissy fit.

That FairPoint shares now trade at penny-stock levels is a testament more to market jitters than to company fundamentals.

Make no mistake: Unfavorable industry trends and a bad economy do continue to pose significant obstacles to FairPoint's growth. Yet the company has made good on its planned cutover from Verizon's (NYSE:VZ) network systems, with initial reported difficulty limited to customer email access. Wireline losses -- a dynamic to which even telco behemoth AT&T (NYSE:T) has not been immune -- moderated slightly in the fourth quarter of 2008. This news could mean that the worst is over in terms of having customers swap their old-school landlines for cable and wireless technologies. 

The most dramatic argument against the severity of market reaction comes down to financial performance. If we normalize fourth-quarter 2008 operating cash flow for non-recurring expenses associated with the Verizon cutover, extrapolate these results for all of 2009, and adjust for the top range of planned capital expenditures, then projected 2009 free cash flow comes in at $181.2 million.

Granted, using a single quarter as a basis for full-year estimates is a dicey game, and doing so should be regarded only as a way to derive the broadest of ballpark figures. The estimate does not account for potential relative strength in the first half of 2009, and you should bear in mind that FairPoint reported seasonal headwinds in the third and fourth quarters of 2008.

So are you worried about management's warning that liquidity in the next couple of quarters could take a hit from a possible delay in billing cycles? Well, then, let's aggressively price in all of these concerns by cutting our free cash flow estimate in half, down to $90.6 million. Based on FairPoint's recent share price, that figure yields an unbelievably low price-to-free cash flow ratio of approximately 0.5. Moreover, that reduced free cash flow number amply covers 2009 debt repayments of $45 million.

Call me crazy, but it looks as though the market has overreacted. We could even see a restored dividend in the next few years.

Related reading:

Fool contributor Mike Pienciak owns shares of FairPoint. The Fool has a disclosure policy.