Altice USA Earnings: Small Operational Improvements Lend Needed Stability to Profitability

Altice USA ATUS took another small step forward during the third quarter. Customer trends are showing gradual improvement as the new management team implements new marketing and customer service tactics. While the stock remains deeply undervalued against our $13 fair value estimate, we remain cautious, as our Very High Morningstar Uncertainty Rating reflects. For investors who share our view that valuations among U.S. cable stocks are attractive, we think Altice could augment a core position in Comcast for those willing to take on additional risk in exchange for upside potential.

Net broadband customer losses totaled 31,000 during the quarter, better than 43,000 net losses a year ago. Average revenue per residential customer also increased sequentially for the second consecutive quarter and was up year over year for the first time in 2023, by 0.3%. Business services revenue grew for the first time since early 2022, albeit less than 0.1% versus the prior year. With the continued steady loss of television customers and weak ad revenue, total revenue declined 3.2% year over year, a meaningful improvement from the 5.5% decline during the first half of 2023.

Altice continues to make progress on costs as well. EBITDA declined less than 2% versus a year ago, the best performance in two years. With the pause in some projects announced last quarter, capital spending declined $140 million from a year ago to $353 million. Free cash flow turned positive for the first time in a year, despite higher cash interest and tax payments. Management expects capital spending for the year to be around $1.7 billion in 2023, which should allow for positive cash flow for the full year. While Altice didn’t provide specific forecasts for 2024, it sounds like fiber network expansion will slow again, which we estimate could trim around $200 million from its capital budget. But spending on the next iteration of cable technology and accelerated network expansion could offset that savings.